Back on July 26th, we invited Martin Armstrong back to get an update on his views on stocks, bonds and politics. Not only did Martin suggest remaining in stocks but there remains no alternative. The interview offered insights on the equity markets, differing importantly from the views of other famed economists like David Rosenberg.
While most MoneyTalks listeners are no stranger to Martin’s work, new listeners can recognize him as the American economist who has been developing Socrates, an AI system that monitors the entire global market tracking international capital flows. During the interview, we asked Martin if the markets are developing a topping formation or if there is room for this market to continue.
Martin Armstrong: This is really a consolidation. And what you have to ask yourself is, really, if interest rates are definitely going higher. There’s no question about that. So, effectively, you’ve got the bond market going down. You’ve got people concerned about government on all levels. You have Europe – honestly, Italy may end up in a revolution within a couple of years. You have the euro in trouble. You have Brexit going on. You’ve got chaos from Malaysia on.
The safe haven, actually, is equities. And the amount of money in the bond markets versus equities is – everybody knows it’s close to 10 to 1.
So, all this nonsense about the stock market is going to crash 50%–60%. That’s when it’s overbought. You had a real big retail speculative position in there. We don’t have that.
In fact, a lot of the fund managers have been selling equities. Yet, the market keeps going higher. So, it’s going to be more of an interesting situation where they’re kind of flat. And it’s like, well, if this thing starts to take off you’re going to have a lot more people rushing back into it.
There are certain times in history when the stock market is the problem. And then on the other side of the coin is when government is the problem. And that’s what we have.
Just look around at the states in the US. We have Illinois, California, New Jersey. I moved to Florida. My lawyer basically told me, if I died to tell my family to drag my body across the river before they told anybody. Taxes are going up crazy.
Effectively, the real problem is government doesn’t know how to manage even a bubblegum machine. To them, it’s always, like, whenever they need money, well, we’ll just raise taxes. Clearly, they are incapable of managing anything. Otherwise, they would never have to raise taxes. But they constantly always have to raise it.
So, we’re reaching that point where it’s really getting quite critical. And you have all these people bashing Trump all the time. But, really, it is the Trump revolution. And, not that he created something, you have the 28-year-old Alexandria Ocasio-Cortez who won in New York on the Democrat side.
Effectively, they were all like, well, maybe the people really want socialism. That’s not it. I mean, Trump beat 17 career politicians. She just beat the career politician they thought would be the Speaker of the House.
So, what you really have going on is people are just fed up with politicians in general. It’s a global, systemic problem that we have a crisis in the political side around the world.
You have Italy throwing out all the career politicians. You have the same thing starting to brew in Britain. It’s everywhere. You had Mexico just overthrow the president down there. You had the same thing in Malaysia.
At this stage in the game, career politicians have been lying to us since World War II. And they’re just fed up with it.
To emphasize, the equity markets are the safe haven, particularly to bonds. Now, with full respect to Martin’s work, the market will have a major conundrum in the coming years. The central banks are shutting off the faucet of liquidity while the massive deficit that the U.S. government is running is forcing interest rates to rise to attract that capital. This is making capital more and more scarce. Will we be able to see the equity markets rally or at minimum behave as a safe haven asset? I remain cautious. While holding cash and short-term money markets has proven through history to being a poor investment choice, during periods like this, I am more inclined to consider a healthy reserve of cash as a safe haven and for future opportunities that will emerge.
Thank you for reading,
Patrick Ceresna CMT CIM DMS
Big Picture Trading Inc.