HYPERINFLATION – Chicken or the Egg

 

Posted on July 29, 2013 by Martin Armstrong

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Iran, North Korea, Argentina, Venezuela, Egypt and Syria have all one thing in common – the collapse in the confidence of their currencies. This is where we will see hyperinflation and this is what it is all about. HYPERINFLATION is by no means related to the quantity of money, it is directly related to the confidence in the currency. This is the chicken or the egg scenario. The hyperinflation takes place BECAUSE of the decline in trust and confidence in government. It is not the other way around. Governments do not hyperinflate for no reason. They hyperinflate because people lose confidence and they cannot issue bonds for nobody will buy them. This is what we will see in these countries.

Dow 43,000 - ECM 8/7/2013 Turning Point

 

Posted on July 19, 2013 by Martin Armstrong

           

A number of question have been directed at what will this turning point produce. This should not be a major high or low in the major markets. What we should see is a mental shift develop at this stage in the game. In the case of 1987, there was a major high that formed first and then there was a major crash that BOTTOMED precisely on the target. That was the start in the shift of the capital flows.

This illustrates the impact is capital flows and this shifted the asset allocation from the USA to Japan. We had a rising Japanese yen that also acted like a magnet attracting global capital when the assets were also rising.

Here is the dollar-yen for this period. We can see the dollar low in November 1988 and then for the last year, the yen began to decline until it shot sharply higher into April 1990 as foreign capital then withdrew. The dollar was a leading indicator for all events because it was reflecting capital flows.

We should see volatility start to rise next week. The Dow is inching upward but is unlikely to exceed the primary target resistance in the 16000 area. A drop back in many markets into September is likely. But keep in mind that the major event should be later 2015 – not right now.

This should be the shift in capital flows and we do have to be concerned that a capital concentration in the USA could send the Dow Jones Industrials to extreme highs. The MAXIMUM target would be in the 43000 level. As crazy as that sounds, keep in mind we did hit the maximum target in 1989 for the Nikkei as that index rose from 18000 to 39000 between 1987 and 1989 precisely as our computer had forecasted.

2015.75 - Gold

Gold – Never Really Made New Highs Yet

Posted on February 18, 2013 by Martin Armstrong

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The high on gold on the AM London Fixing was $850 back in 1980. However, when we index this to the government CPI adjusting it for inflation, the 1980 high corresponds to a price of $2,305.18 in 2011 dollars. This is a far more important number than all the nonsense of fiat and hyperinflation. Gold in “real” terms has NOT exceeded the 1980 high yet even today. A 911 Porsche in 1980 was only about $50,000. So you are not there yet. For gold to back off, shake the weak players out of the trees, is a necessary and healthy thing that MUST take place to rejuvenate the market for the next blast to REAL highs. Even when there was a gold standard, inflation rises and falls and then gold moves opposite declining with inflation as assets rise against gold, and it rises in value during deflation as the dollar does today. There is NEVER a period when anything is ever fixed forever. Even behind the Berlin Wall there was a black market for West Germany marks and dollars.
This is the problem most people have. When I say there is sizable resistance in the 2300 level technically, this is actually supported by the real fundamental view from an inflationary perspective. Likewise, looking at gold only in dollars FAILS to grasp its true trend. Gold may decline as the dollar rises currently, but is it declining in terms of yen and euro? Everyone acts according to their own currency. If I recommend buying something in Mexico because it will double in peso terms but omit that the peso will decline by 75%, in dollars you will lose your shirt.

Some rant and rave and call me a gold basher. Here is a chart of gold they hated, when we forecast new lows would be made. In a basket of currencies, gold was really declining meaning foreigners would be sellers whenever Americans were buyers. For a REAL bull market, the object must RISE in terms of ALL currencies, not just the local one.
Sorry, those who are trying to make sure nobody listens to me either (1) have such a myopic view of the world it is scary, or (2) have some sort of vested interest in preventing people from ever taking a profit in gold. A REAL analyst NEVER says only buy – that is a salesman. If gold does not constantly go up, it is a plot of some dark force for otherwise they would be right. STOP blaming everyone else for your failure to grasp the global economy. This is about MAKING money – not donating it to the banks who will sell based upon the technicals. Gold will rally. But that will NOT be until Europe and Japan melts down. Look for the real rally after 2015.75.

Golden Rule of Reactions

Posted on February 27, 2013 by Martin Armstrong  

Those who are new readers are probably unfamiliar with what I have called the Golden Rule of Reactions.  When it comes to TIMING, it is vital to understand the basic tenets of cyclical analysis. That fundamental principle is where do we draw the line between a change in trend and a mere reaction. That line is drawn in units of 2 to 3 maximum. In other words, a reaction making a counter-trend move is limited to a maximum unit of time being 3 regardless of the level of time be it daily to yearly. After that period of time, trends then emerge. Right now, we have a 3 day reaction in gold from the low of last week. To establish a change in trend, we must continue BEYOND merely 3 days. Failure to do so warns of only a reaction counter-trend.

Even when there are free markets and a dramatic panic takes place, the same timing emerges during Phase Transitions. We will go over these points at the Princeton Conference. Nevertheless, even look at the Great Depression, you see a 90% decline still contained by the Golden Rule of Reactions – 1929 to 1932.
You must understand that the news is interpreted according to the trend – never in the reverse. US stocks rebounded from their worst decline since November on Tuesday after Federal Reserve Chairman Ben Bernanke defended the Fed’s bond-buying stimulus and sales of new homes hit a 4 1/2-year high. The focus on Italy’s stalemate in the general election failed to give any party a parliamentary majority, was interpreted as prolonging instability and financial crisis in Europe. Of course this will be the case, but then Bernanke’s comments were interpreted as easing investors’ concerns about the Italian mess and refocused on the US economy.
Bernanke, in testimony on Tuesday before the Senate Banking Committee, strongly defended the Fed’s bond-buying stimulus program and quieted rumblings that the central bank may pull back from its stimulative policy measures, which were sparked by the release of the Fed minutes last week. Keep in mind BECAUSE of turmoil in Europe and Japan the capital flows are pointing into the US right now. The U.S. markets shifted from the Italian political circus to Ben Bernanke and the gains in housing because rates have fallen thanks to cash inflows. This should help housing short-term and banks write mortgages right at the bottom once again. Economic reports that showed strength in both housing and consumer confidence. The US home prices rose more than expected in December, according to the S&P/Case-Shiller index, and this should continue into February. Consumer confidence rebounded in February, also jumping more than expected, and new-home sales rose to their highest in 4-1/2 years in January.
Ben Bernanke put in the plug for Obama urging lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a “significant headwind” for the economic recovery. Our models have been warning about high volatility going into March and April where it should peak. So far, the computer has been pretty good.

Interest rates - 2013

 

Posted on January 4, 2013 by Martin Armstrong

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2013 will be the Pi (π) target year for the low in interest rates from the 1981 high. The key in this giant financial crisis is still Europe. Marxism has failed. Russia & China faced that in 1989. The West has to learn this lessen as well. As a whole, Europe will post the lowest economic growth of any region in the world and in real terms will be NEGATIVE. Everything is pointing to a turn in interest rates in 2013. That is when the fun will begin. Obama and France are leading the world down the path of sheer doom.

This is the key. Those that keep preaching gold at $30,000, have been saying the same thing forever and when they are wrong it is some conspiracy. Gold will NEVER rise until there is a real crisis. That begins ONLY when interest rates turn. The same with those constantly preaching 10 cents on the dollar for the Dow. To get that kind of move requires interest rates at a peak, not a low. Here is a chart of the call money rates. EVERY panic sell off comes from high rates at the peak and the collapse in rates follows asset prices because capital flees to government as we saw in 2007. To get that today means interest rates will go NEGATIVE. You will have to pay the government 2% to hold your money. Can you really imagine that

2017 - Europe

European Outlook for 2013

Posted on January 7, 2013 by Martin Armstrong

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Europe could decline into 2017. At the very least, we should see Europe come in with the lowest economic growth in the world.

War - 2014

Posted on January 9, 2013 by Martin Armstrong

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The Cycles of War 2014

Yes the Cycles of War are due to turn up in 2014. But this will most likely begin with the rise of internal separatism and civil unrest. True this model pinpointed World War I, World War II, Vietnam all spot on. This time, it is primarily focused in the West/Middle East rather than Asia. The real risk remains Russia. We will be reviewing this year the Cycles of War on a detailed basis since the last report was published in 1986. There appear to be some surprises ahead. War has been a fairly regular pastime of mankind, but it ALWAYS is linked to economics.

Real Estate - Asia

 

Posted on January 15, 2013 by Martin Armstrong

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QUESTION: I am one of your biggest fans and I love your articles and have learnt so much from them. I have been reading your articles on real estate. The peak was 2007 and we have a 26 year decline into 2033. My question is: I live in Australia having moved from New Zealand in 2012. I have noticed that Australian and New Zealand real estate is still at record highs! – Even higher prices than 2007? Are you able to explain this at all and why these two markets are not operating to your 26 year decline? I would LOVE to buy a home right now but my intuition is holding me back and I trust my intuition (possible from knowledge gained from your articles). To be honest with you, I am so sick of unaffordable housing thanks to all this 30 year debt.
ANSWER: The Real Estate Cycle that peaked was in the West – not East. The financial capital of the world is shifting from USA/Europe back to Asia and Australia is closely tied to Asia rather than the West, This is why the A$ will eventually rise. Real Estate is still doing well in the “fringe” regions surrounding China. The core China economy took a hit, but not severe. China will still rebound but SE Asia and Australia in select parts have not felt the real estate crash of the West for they were not as highly leveraged by the investment banks. It does not appear that there will be a major decline in Asia before 2015.75. Expect a decline in prices there as USA/Europe meltdown. It will be at that time were we also see a real estate drop in the old Iron Curtain nations. Banks are handing out credit cards like candy there now. Keep in mind that there were no mortgages in Eastern Europe. People got to buy their homes for a few thousand and thus acquired equity. Their first peak will be 2015.75 as well.
The whole world NEVER moves all in the same directions. There always has to be two opposites, It has been that way for the last 6,000 years.

Dow 2014 - Update

Dow Off to New Highs?

Posted on January 25, 2013 by Martin Armstrong

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The Dow closed the week at 13895.98 providing yet additional buy signals warning that we may yet see new highs on Monday. Everything is still on track for a high in 2014. There is a potential for a intraday high in 2015 leaving 2014 as the highest yearly closing. The next key Weekly Bullish Reversal stands at 14169.50. We should see a temporary high next week. We need a monthly closing ABOVE 14280.00 and that will signal a breakout to new historic highs ahead. Our monthly technical resistance stands at 14220.00 during January, while the target resistance for 2015 will stand at 18450 followed by 25825. The projection Channel from 1929 provides the underlying initial support for 2013 at 12640.00.

Dow 2014

 

Posted on January 26, 2013 by Martin Armstrong

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2014 is the next big turning point. That means we either get a high or a low, We did NOT achieve a Yearly Bullish Reversal at the end of 2012. We need a monthly closing ABOVE 14280.00 to signal a 2014 high. The failure to elect the Yearly Bullish Reversal is a caution that we must remain careful.
Either we get a high closing in 2014 with 2015 as a Panic Cycle warning we can see an outside reversal in trend exceed the high and penetrating the low of the previous year. If we CANNOT achieve a monthly closing above 14280.00 after August 7th, then we may see a low in 2014 and then 2015 would be a Panic Cycle to the upside. This would tend to warn that the 2016-2020 period will be a collapse in bonds and a rise in stocks.

Of course there is the nonsense that stocks decline with rising interest rates and rise when the declining rates. That is another relationship that just does not hold up to any correlation. Illustrated here is the Dow and long bonds during the Great Depression. The Dow rose with rising interest rates and the bonds declined. The the Dow peaked in September 1929, the bonds rallied as they ALWAYS do – it is called the flight to quality. However, when the Sovereign Debt Crisis hit in 1931, the bonds collapsed WITH stocks as capital was destroyed.
Thus a LOW in 2014 would set the stage for a full scale economic meltdown of the debt markets between 2016 and 2020. We would see the strangest patterns with rising stocks as capital flees all bonds. These are the times that forge men’s souls. This is no time to try to be in search of some guru. This is a time you better start to understand reality. The Free Markets are always right. The Reversals will guide us. The market speaks through action. It is up to us to listen.

2016 and US dollar

2016 – the Coming Event Horizon

Posted on July 10, 2013 by Martin Armstrong

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I have written about the 224 year cycle. These turning points have marked major changes in political trends. Sometimes society survives mostly intact because we blink such as the replacement of monarchy in Britain or the overthrow of the king in Rome giving birth to the Republic in 509 BC and the birth of Democracy in Athens the following year in a sweeping contagion of political change.
If we add 72 years to the Mississippi and South Sea Bubbles of 1720, we arrive at 1792 (1720 + 72), which was also the first Panic in the United States real estate market. Now add 224 years to that and we come to a Event Horizon in 2016. Now take gold which appears headed like a magnet moving into two 8.6 year cycles back-to-back from the 1999 low (17.2 years), which also brings us to 2016. Add 26 years to the Japan Bubble Top 1989.95 and we also arrive at 2016. Add 31.4 years to 1985, which was the birth of the G5 (Plaza Accord) organized attempt to manipulate the world currency markets and we also arrive at 2016.

Our computer has been warning for decades that 2016 will be the beginning of a rise in third party activity. To accomplish that, we should see stagflation where assets rise with a strong dollar that causes confusion at the Fed who will respond by raising interest rates trying to stop a speculative bubble it fails to comprehend.

That asset bubble is driven by capital inflows both from Asia and Europe. This will send the dollar higher, create massive dollar loan losses, the Fed will be powerless and raise interest rates to stop a speculative bubble that will merely draw in more capital thanks to higher interest rates. The global economy is beyond the control of central banks and their attempts to manipulate the business cycle have placed them in direct harmony with it as the free market now manipulates government.

Euro and Swiss Franc

Posted on July 10, 2013 by Martin Armstrong

Nevertheless, the more BEARISH Europeans became on the US debt, the higher the dollar rallied. How was that even possible? The Eurodollar deposits dropped by about 50% and they shifted the money to domestic dollar deposits. This is exactly how capital has been moving inside of Europe buying German and Swiss assuming that is a hedge against the collapse of the Euro. A green dollar would be worth more than and red one so they moved into the USA driving the dollar ever so higher. The more BEARISH they became, the higher the dollar moved. Absolutely fascinating. In Europe, the more bearish they became on the Euro, the more stable it emerged because they were merely buying German bonds in Euros and the Swiss pegged their currency to the Euro to stop the capital inflows – another trap for the future ensuring the Swiss peg will break and they will tale a huge loss on their Euros.

Interest rates into 2017

 

Posted on June 30, 2013 by Martin Armstrong

There is a tremendous degree of hidden order behind everything. Here is a chart we have been publishing for decades. We created a continuous chart of the US government 30 year bonds back to inception. Look at the uptrend line. We reached our target objective here and it was a retest of that technical line. This is the kiss-of-death. The government bonds look like absolute disaster long-term. The good news – the US is the best of the entire group of nations.

How was this created? Here is the chart showing each series of bonds used. In creating this view it enables us to see the broader trend that even refects the confidence within government.
Our computer models suggest that rates will rise into 2017. This uptrend appears to be set in motion thanks to the short-term nature of the national debt.

Gold - To buy or not to buy

 

Posted on April 7, 2013 by Martin Armstrong

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Gold is still in a basing phase. The interesting thing is how some have sold this market as the single exception to everything in the world and how it can only rise. Gold is a tiny fraction within the scheme of the global economy. It really is no longer relevant for in case you haven’t noticed, they have successfully replaced even paper with electronic bits of data – ie Bitcoin. This changes everything and eliminates privacy.

Nonetheless, all is not lost. It is important to at least understand the nature of the beast or else how are you going to survive. Gold is a  infinitesimal market and claims that it has to rise to $30,000 to restore some equilibrium sound nice, but are impractical. Here are two coins, the rarest of all Roman known as the Saturninus of which (1) is in private hands, and the 1804 US silver dollar of which there are 15 known. The Roman sold for $500,000 back in 1997 whereas the 1804 sold for $3.7 million in 2008. The Roman today would probably fetch $5 million or more, but there is no equilibrium. Demand fluctuates and like the silver gold ratio, it will move all over the place.
The advantage of gold has been its wide acceptance of an object of value. That has made it desirable and negotiable. But make no mistake about it, it will not go to $30,000 simply because if you divide the gold reserves into the debt that is where it should be. Sounds nice, but NOTHING works that way. Using that logic, the Saturninus should bring 15 times that of an 1804 US coin or about $55 million. You can look at countless areas in all countries and sectors. What makes a condo worth $5 million in NYC when the same thing in Princeton, New Jersey would be $1 million. It is called demand. The Dow was at 1,000 in 1980 and gold hit $875. The Dow reached almost 15,000 and gold almost 2,000. Under this logic, gold has to rise to match the Dow, or the Dow must crash to match gold. Such equilibrium comparisons are like fools gold.

Gold will rise, but not until 2015-2017 for an exponential move. It should find support and establish a base. It will rally and get everyone excited as they always do coming out claiming the low is in place and how they were right because money is fiat. Then gold will go back down, they will eventually have to capitulate and those that bought on the nonsense of stories for the wrong reasons will get burned as always. Understand, it is a market. There is a TIME to buy and there is a TIME to sell. Welcome to cycles

Inflation vs deflation definitions

Posted on April 21, 2013 by Martin Armstrong  

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Question: if the world goes into deflation around the 2016 date, how will commodities
                 rise??  ( hoarding ) How will they pay the mines without a money system??

Answer: There are several types of inflation such as:

• (1) currency inflation whereby prices rise NOT because of an increase in money supply, but a decline in value of the currency on world markets (i.e. G5 manipulation of dollar 40% lower in 1985 led to 1987 Crash & capital flight back to Japan creating bubble there);
• (2) capital concentration into one sector causing bubble which can be
  • (a) purely domestic or
  • (b) inspired internationally with rising currency as was the case in Japan 1989 or USA into 1929; 
• (3) the classroom plain vanilla idea of a rise in prices with an increase in in money supply such as
  • (a) sudden discovery of gold in California, Australia and Alaska during 19th century, and
  • (b) the import of gold and silver from America into Europe by Spain that created wholesale systemic inflation in all European economies, and
• (4) commodity inflation that is caused by a drop in supply such as food due to weather or exhaustion of resources
• (5) money supply remains unchanged, but the VELOCITY increases from leverage (i.e. lending).
• inter alia

Deflation is likewise multidimentional

• (1) the classroom version of a decrease in money supply;
• (2) failure of money supply expansion to match increase in demand for money
  • (a) as in deleveraging during economic decline as VELOCITY collapses and thus even QE1, QE2, QE3 failed to produce inflation because they were less than the destruction of capital from deleveraging
  • (b) the classic contraction in money supply during economic declines relative to the shift in demand from assets to liquidity
  • (c) rise in the demand for money outpaces the available supply as in flight to quality
  • money supply growth falls below economic expansion
  • money supply growth falls below population expansion (more people making due with the same amount of money)
• (3) contraction in available capital due to rising costs private or public
  • (a) from sudden price sock as in OPEC during 1970s creating STAGFLATION
  • (b) sudden rise in taxation causing decline in VELOCITY of money
  • (c) confiscation of assets by regulation
  • (d) historical forced loans,
  • (e) criminalization of normal human activity to confiscate assets as penalty under pretense of law
• (4) in a precious metal money supply the debasement of new currency causes Gresham’s Law whereby the the older money supply is then hoarded thereby shrinking the TOTAL supply of money
  • (a) this causes prices to rise in terms of the debased new currency ONLY creating an admixture of inflation (rising prices systemically) coinciding with a deflation caused by the contraction in the TOTAL available money supply
• (5) collapse in government / rule of law causes wealth to shift and concentrate in tangible assets (flight to quality) that survives the transition to a new government and monetary system
  • (a) this is normally associated with a collapse in the legal tender status of money whereby government no longer accepts its own currency in payment for taxes
    • (i) as was the case in Rome
    • (ii) Japan constantly demonetized previous currency or devalued it by a factor of 10 causing wealth to hoard in tangible assets and barter to emerge as rice displaced coins for 600 years because of devaluation by government
• inter alia

How will they pay the mines without a money system?? This assumes new production continues whereby prices can rise BECAUSE the production fails to keep pace with the increase in demand, similar to a weather crisis causes food prices to rise. Gold can rise during a deflationary crisis WHEN the crisis is in government and thus when the flight to quality shifts from PUBLIC (cash) to PRIVATE (assets). We are facing the CONFISCATION of assets similar to Japan’s devaluation of outstanding money supply. This because a variety where MONEY loses its legal tender status and is no longer acceptable for the payment of taxes and thus taxes take the form of “in kind” meaning they just take property as in Cyprus or M.F.Global. There are numerous other dimensions to this question that will be addressed in a more authoritative writing. We have cataloged virtually every crisis and the various schemes employed since the dawn of civilization.

ECM – Just Follow the Money

Posted on July 10, 2013 by Martin Armstrong

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QUESTION:
Hi Marty,
Has the ECM failed to predict events in the past? If so, which ones and were you able to modify to address the flaw? If not, what event(s) would need to occur to disprove the validity of the ECM?
Best Regards,
Kyle

ANSWER: No. It is a composite of everything, not anything individually. The key is understanding that capital flows from one market to the next and among nations. Capital always concentrates not just among individuals, but nations and within sectors. 2007.15 was real estate, while 2015.75 will be bonds, 2000 was the tech bubble, 1998 was Russia, 1994 was SE Asia, 1989 was Japan, 1985 was the dollar, 1981 was interest rates, and on and on. It is like lightening – it never strikes twice in the same spot.

Each market and nation have their own cycles. It is when that lines up with the ECM that we can distinguish where capital will concentrate this time. Gold flips because when it is money officially then it declines with inflation and when it is a commodity it will rise with inflation. The 1934 was the low and the beginning of the new gold standard whereas 1998 was the bottom. The cycle still functioned, you just achieved a cycle inversion.

When I was called in by the central bank of China for the 1997 Asian Currency Crisis, I was warning that the capital flows were shifting back to rush into the birth of the Euro. SE Asia peaked in 1994 4.3 years after Japan, and then the final panic sell off as capital was trying to get in for the euro.
 

Interest rates into 2015.75 AND Beyond

Interest Rates will Soar into 2015.75 and Beyond

Posted on July 10, 2013 by Martin Armstrong

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Here is our 1996 forecast for long-term interest rates that we put out with the dollar low in 1995. We warned that interest rates would bottom on the Pi Cycle 31.4 Years from the 1981 high. That would be followed by a very sharp rally in rates into 2015.75. This was all part of the forecast for the Sovereign Debt Crisis. So to answer all the questions coming in about interest rates – beware of any bond fund. They will crash and burn.
The Fed bought-in 30 year bonds trying indirectly to support the housing market. They fulfilled the cycle perfectly and now we will see rates rise faster than ever before. Thus, everything is exactly on schedule. 2013 is the turning point in rates.