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Notes From Michael Oct.11th - Ryan Irvine & Martin Armstrong

Posted by Michael Campbell

on Wednesday, 11 October 2017 14:13

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

Sylogist Ltd. SYZ.V 
3.3% Dividend trades @8.50
Market Cap approx 200 million, 30 million in the bank, no debt
Turnkey software solutions, hardware products and professional services
Great description from Ryan on why they like this company on the audio at 09:29 HERE
 
syz
 
 
XPEL Technologies Corp. DAP/U.V
Trades at $1.60
Revenues 51.7 Million, 25% growth rate in earnings and revenues
Manufactures and sells XPEL Protective Films for cars to minimize dings & rock chips
Great description from Ryan on why they like this company on the audio at 16:45 HERE

dap

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: 

 
“During this new stage of the depression, the refugee gold and the foreign government reserve deposits were constantly driven by fear hither and yon over the world. We were to see currencies demoralized and governments embarrassed as fear drove the gold from one country to another. In fact, there was a mass of gold and short-term credit which behaved like a loose cannon on the deck of the world in a tempest-tossed era.” 
 
Take a look at what Herbert Hoover wrote in his 1931 memoirs above and just replace the names to Greece 2010. What did he say? He basically said once capital started moving they didn't know where was going, it was going so fast. All right once the trade in Greece went what did the traders do? Oh gee we made a lot of money on that who's next, Oh Portugal,  Oh look at Spain, Italy and France…. that's a contagion.
 
Michael: So the message is stay away from municipal. What about State and Provincial?
 
Martin: The municipals start to go first, you've got 50 percent of the municipals in Germany basically in insolvency. Merkel was waiting for the election and after the election they would have put a tax in to try and bailout their municipals. So it's always raise more taxes and you know the bottom line is what do people really have at the end of the day and that's what’s starting to rise up. That was Brexit, you're seeing it in Barcelona, we're seeing everywhere across the globe. So you want to stay away from the municipals as they will then spread as a contagion to to the state and provincial level who like municipals also can't print money. Then it it manifests, for example, you will see the euro break up as the economic conditions are different in in all these countries. Greece is a much more different economy than Germany.  

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?

Martin: No, this is the calm before the storm. What you have to understand, they’ve gone after banks for trading etc. Retail participation is still at about 50% of what it was in 2007. Now you've gone after the banks and they've been paying a lot of big fines etc so a lot of the banks are now getting out of proprietary trading and so consequently the liquidity of market says is down dramatically. Now you take Europe, it's so socialistic you wouldn't believe it, but they don't understand markets at all so they made it illegal to short any government bonds. So basically they’ve destroyed the free market in Europe completely. So what do you get out of this. As soon as anything happens that scares capital retail and institutional markets suddenly get no bid. That’s what creates the flash crash. When I was called into the Brady Commission to investigate the 87 crash they don’t understand this stuff. Their first words 'Oh we're gonna find the short player that pushed this down" and I said to them, excuse me do you realize that every investigation since 1907 began with those words and you've never found this big mythical short yet. It's that everybody’s long, they tried to sell and guess what, there's no bid all. That's the volatility that concerns me. Whatever we saw between 2007 and 2009 is going to be magnified for the next one.
 
Michael: You've been writing about a Catalonia as part of that big picture breakup of the EU.
 
Martin: This is very very profound because all you have to do is look at what the government is doing. Canada you had two referendums for Quebec. Britain they had Brexit and a referendum for Scotland. In Catalonia the EU is saying you don't even have the right to vote.They've sent in troops and and now they've gone after Google to shut down any use of Google to communicate. Just yesterday they closed the airspace to stop planes going into Barcelona because people are gathering there to protest against the government. Well how do you think this is going to function. A basic human right is the right to revolt against the government when it’s gone too far. American Revolution, French Revolution, English Civil War, I mean this is part of humanity. We're not drones here, or cattle to be herded. So its shut up you do what we tell you, that's slavery. 

Michael: I just want to fire a couple of things at you and get your comment. What’s your quick take on gold now?

Martin: At this point you have to understand that the the bulk of the people all right do not look at this as a collapsing government yet. We’re getting there but it's going to take some more. Plus you have changes in the generational evolution in India. Despite everything they're saying the younger generation are not buying gold like the older generation. The same thing here. You go to Starbucks or something similar and look at the youth. What are they doing, they hold up their phone, they don't even have paper money. So things do change all right. Just because the older generation says buy gold, that's the hedge against everything, it's not taking off. Why? You're not the only ones out there, there are other segments. Eventually they will come up but you have to look at when the confidence in government collapses. You know there are people that are smart and so when Germany was going in the wrong direction they had to have a boat and they fled. The others kept saying well maybe it will work out. I had a professor who basically explained it this way. Two people were on top of World Trade Center (when it used to be there) and a good stiff wind blows them over the side. The pessimist immediately started praying oh my god I'm going to die forgive me for all my sins. The optimist as he's passing the fourth floor said "well so far so good”.

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. 

Martin: Support is at 78.25 and if you get a weekly closing below that it confirms we are heading back down again. But you have to understand is what breaks the system. What breaks it is only when the US dollar goes up. When Roosevelt confiscated gold, he did so, because the dollar went up so high. You have protectionism, the U.S. felt they couldn't sell anything. When did that happen again, 1985. The pound went to par, what happened, they started G5 . 
 
If the dollar goes down, as you have all these people saying the dollars gonna crash, Trump's fantastic that's what he wants a lower dollar. The world everybody's fat and happy because they borrow in dollars they have to pay back less. What's going to break this system a rising dollar not a lower dollar. And what causes that? Looking back it has been war world war one, world war two all the money went into the states alright. But also what's causing it is the collapse in governments like we're seeing in the EU and we're seeing problems in Japan. So now you have a set of bookends over there with Rocket-man, you've got North Korea and you have Iran saying that's a good idea we're going to start missile defense as well. 
 
Michael: Let me come very quickly to the long-term stock market. 
 
Martin: It is basically what we call this public versus private. At times, you go back to the 1920s yes the private sector got excessive that is what crashed and what do you do, you run to bonds. What do you do when government is the problem, you run to the private sector. This is why we came out and said the Dow was going to make new highs in 2010. Barron's wrote an article that said Armstrong says that the market was gonna make new highs ha ha ha yeah right. That was back in 2011. Of course they never covered anything since because they were wrong. You've had nothing but basically seven years of analysts saying the stock market is going to crash any day now. I was asked to be on one show, I said why do you want me on the show. He said well, basically you’re the only guy that that has been bullish. He says it's it's just overwhelming, all the people on our show just bearish, bearish
So it's it's this capital movement and if you just go on to our site and look we have a chart you can call up there, just search S&P p/e ratio, you know people were saying 25 is too high. Okay fine, the peak on the dot-com bubble was 50. Where is the historical high? In 2009 at the low it reached 120! Why? If you don't trust the banks, you don't trust government, it gets to a point I just want to put my money someplace where I can just get it back. It’s not a question of what's my return, so p/e ratios don't mean anything when the peak of 120 is at the low in 2009 .
 
Michael: So long term you're still positive.
 
Martin:  Your first resistance on the Dow going into the end of the year is around 23,700. Then we have some resistance around 25,000 - 26000, but this thing's going to like 40,000. I's going up much much higher. 

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.

 

 


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