Posted Jul 8, 2013 by Martin Armstrong
The rise in interest rates will have a major impact upon commercial and investment banks. Believe it or not, their models are incapable of forecasting major changes in trend. They are far too short-term oriented and are created by quants with no real historical debt. That was the subject of When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein. So databases even going back to 1971 are inadequate and cannot prepare society for what lies on the horizon. While many have attempted to mimic our computer model, they failed to grasp that I had the training in programming, physics, and trading experience. That enabled me to create a model ONLY because I had all three backgrounds. Otherwise, the trader does not understand programming or physics and the rocket scientists fo not know how to trade. Hence, they create models that collapse.
The trend we face is part of the serious flip in what we see ahead that will drive most people insane and as always separates the real from the imaginary trend. My sources have been the best globally BECAUSE everyone realized that the model was unbiased and thus sharing info benefited everyone. I reported on GOOD sources that the Fed was making the rounds to the major banks warning them that their models we inadequate and that the must re-calibrate to take into consideration what we have been warning about – the shift from PUBLIC to PRIVATE. This is NOT speculation. The Fed may have finally been convinced about our long-term models that warn there will not be a flight to quality that goes into the Treasuries. That flight this time will be to the PRIVATE assets.
Here is a chart showing the shift when capital moves from treasuries to corporate bonds. When governments collapse, their debts are UNSECURED and you get nothing back because they have the tanks and guns. Smart money realizes that PRIVATE assets are better and indeed those who shifted survived. The history books, including even Galbriath’s Great Crash, all painted the problem of the Great Depression as caused by the greed of corporations. They ALL omitted any mention of the Sovereign Debt Crisis. Why? If they told the truth, the how do you sell socialism with government intervention? You cannot! So the shoe-shine boys were blamed and the Senate investigations never produced the conspiracy to short the market. They found everyone was long at the top except a very few.
The seminal work on the Great Depression that EVERYONE used including the financial analysts and the quants creating models is none other than Gailbraith’s Great Crash. Nowhere in the index do you see any mention of the Sovereign Debt Crisis. If you base a model on falsehood you get the classic garbage in = garbage out. This is up there with the HYPERINFLATION stories that omit the fact that Germany was a communist revolutionary government. If you create bullshit, you only get losses and more bullshit. This is about survival. You have to question ANYONE who fails to tell the truth. What is their objective?
What I can say is this. There are people in government who want to silence me forever. There are also bankers who blame me for their impending fall. There are Goldbugs to want to silence me as well. The common thread running through all of this is they BELIEVE that they can talk the markets up or down. So they see me as “influence” rather than putting a spot light on how the world REALLY TICKS. They think silencing me and they will win – government will keep control, bankers can continue to control government, and Goldbugs will talk gold up to $30,000. They are all fools who want to play demigod over the markets and society and all three blame anyone who disagrees for their own failures and do their best to eliminate them for good rather that entertain that perhaps Adam Smith was right after all – there is an invisible hand that rules the universe that cannot be deterred by oppressive laws, manipulations, or injustice. There is a whole new world waiting to be discovered once we conquer this corruption of man.