muses of the moment

November 18, 2009

Martin Armstrong’s latest letter:Capital Flight

Click here for Martin Armstrong’s latest letter dated November 11, 2009 entitled Capital Flight: The USA Has Lost It’s Stature as the Financial Capital of the World. (14 pages)

This is a good one, please read.

Quotes from Martin’s letter:

“ What we must do is dissect the whole economic structure and study HOW it works in order to understand the solutions. We cannot proceed just on OPINIONS. Where’s the proof? Where’s the study? Where is the evidence of what you say is correct?

What has taken place over the years post World War Two is that the concentration of wealth in the United States caused a false sense of invincibility. The housing market had a good run. From roughly the 1955 period, we have seen about a 52-year rally into 2007. It appears we may have reached a major high in real estate and this is of great concern. For if this is the case, then what in fact we are actually looking at is a serious contraction in what people believe has been their long term Piggy Bank.

This trend is converging with the retirement of the baby boomers. It is also converging with the securitization of real estate pools that created the 2007 high in February. This combines even still with the dangerous problem we have of the debt that is also starting to implode on a STATE and NATIONAL basis.

Effectively, because we are not the financial capital of the world as we were in the 1930s, the trend that emerges will be different as well. When capital was fleeing Europe and rushed to the dollar driving that up in price so that we then turned to protectionism, the opposite is now taking place whereas the dollar is falling as capital is fleeing, so if we see anything, the high degree of imports will be inflationary in the US, not deflationary.

With the banking system still in deep denial and capital beginning to show signs of caution shortening its maturity even in sovereign debt, the long-term horizon will also collapse. The more difficult it becomes to fund long term, the greater the deflationary effect will be in housing. Never the less, this will not (deflation) be any national trend.

What we have is an inflation pressure in other sectors that we will see manifested in stocks and commodities. It is the real estate that is still leveraged and will take a serious impact upon exclusively real estate. If funds are not available to provide long-term mortgages, then the prices in this sector will continue to fall. That is not the same fate that is shares by the rest of the financial world.

It is the lack of liquidity in the real estate market that is the problem. Prices reflect the ability to borrow 30 years of future income. As that contract, prices collapse.

We do not have that of leverage in stocks and commodities.

Consequently, The future that lies ahead is not as easy as most would want you to think. The core interrelationships will shift and change. We are facing a serious problem with the real estate sector as a whole, and this will be reflected again in the second phase of the major crash that began 2007.15 precisely to the day. The banking crisis is not over either. As this turmoil brews you will see every fundamental idea of how market function will be laid bare on the sidewalk of ruin. This is not the time for opinions. This is time for serious work.”

Jim Sinclair’s Commentary on Martin’s Letter:

The article by Armstrong presents conclusions based on fact, not opinion. It makes present time comparisons that must draw your attention to the equity markets in the Weimar experience.

It helps explain the increasing prices of goods and materials in a period of at best modest demand. It refers to the large currency exiting from the US, which may well have to do, among others things, with those huge profits made since April of 2009 by the financial industry.

It is a thesis, as I see it, for Martin Armstrong’s courage to state, at risk to all he has, his reputation in markets, the conclusion that gold is going to $5000.

It explains the stair step that Trader Dan has been outlining for us. This is a time for data, not opinions as opinions lead to confusion. Data leads to actionable conclusions.

It is more foundation for me to say gold will trade at $1224, $1278, $1650 and then of to Alf and Armstrong’s numbers.

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