Monday, November 25, 2013

Tax Revolts and that 309 Year Cycle

I enjoy reading your writings and find them extremely thought provoking, and ultimately very common sense to me. I have to say though Iam not sure about your assertion that governments will tax and tax. I believe they are trying, and will continue to do so, but take a look at the upheaval in France at the moment. This is starting to qualify as a full scale tax revolt. Iam also reminded of the poll tax protests here in the UK in the 1990s. I believe they will quickly hit the wall with taxation and either have to print to fund obligations or let those obligations go. I hope they let them go.
As you will see by my name I also am from Scottish stock. It looks highly unlikely barring a sea change that Scotland will vote to split with the UK. In any case, the SNP are hardly credible as leaders. An independent Scotland run to the philosophy of Adam Smith would thrive, but run by the SNP to the prescripts of socialism it would not look good.
Once again many thanks for your honest BS free articles.
Kind Regards, RB.
ANSWER: The trend has been these people will tax and tax and then tax again until society revolts historically. You are precisely correct that at some point a tax revolt emerges. That was even the core reason behind the American and French Revolutions. Sometimes those in power will get it. Ironically, republics (fake democracies) always turn into oligarchies and are actually the worse form of government you can create. There are really no checks and balances and as we see today, politicians go out of their way to prevent the people from actually voting on any specific issue as is the case in Europe and the USA. You vote for a party/person who lies anyway and then they do as they please
The best form of government is actually a benevolent dictatorship for they simply do what is right for the country and do not have to answer to anyone else. It is strange indeed,Hadrian (117-138AD) faced a tax revolt from previous emperors that had accumulated. In 119AD, he declared a tax amnesty and issued a Sesterius depicting him burning the tax records. The only Republic that did not transform into an oligarchy was that of Genoa. There the richest families ruled, but each rotated as the Doge for one year. Thus, they never became Draconian for the feared retaliation next year and they would be subject to their own laws. Career politicians are always exempt. Genoa did not fall into a rich v poor, it was business always but that benefited the entire city for it perpetually competed against Florence and Venice. You simply cannot have career politicians – NO EXCEPTIONS!
Look at the reforms being taken in China. They are actually for the benefit of the country rather than a political party. In our pretend Democracies, each party will fight to prevent the other from getting credit for anything. They would rather hurt the country than let the other party gain a victory. Take the shutdown. Obama had all the government websites turned off when it fact it cost more money to do that than just leave them alone. He sent in barriers to prevent people from walking in federal parks when there were no employees at such parks to begin with as in Virginia. All of this to make the shutdown as draconian as possible to blame the Republicans. The same takes place in Europe and Britain is no exception.

In my younger days when I believed I could make a difference, I participated in trying to get tax reform in place and to save social security. I was behind the movement for a consumption tax eliminating the income tax and to privatize social security by placing the funds with fund managers (not myself) to actually invest the money. The Dow was trading in the 5,000 area and we were project 12,000 by 2000 (we stopped at 11900).
Martin Armstrong Steve Forbes Jim Florio

I even debated Steve Forbes and Governor Jim Florio taking the middle ground between the Flat Tax and Tax’em Till They Drop policies of the Democrats back in 1997. I testifiedbefore Congress on Tax Reform. I made every effort to try to prevent what we now face today.
TAX-REF (3)We produced studies that were being circulated around everywhere. I found myself on Capital Hill shuttling back and forth between Dick Army who was championing the Flat Tax and Bill Archer who was Chairman of the House Ways and Means Committee championing the Consumption Tax. Both were Republicans and both were from Texas. But they would not sit down with each other for that somehow would have led to unfounded rumors. So I became the go between. I sat in Dick’s office with his boots on the desk as he smoked and filled the room. He looked at me and said: Marty, I cannot agree with the Consumption Tax unless there is a Constitutional Amendment eliminating the income tax for when the Democrats got back in power, we would then have both. It was at that moment I knew meaningful tax reform was doomed.
So today I am more practical. I seek to inform people of what is really going on Behind the Curtain for I have been where others cannot even imagine in a fictional dream. Dick Army had the same practical view of politics that Margaret Thatcher had – it was cyclical and only a matter of time before the other side grabs power for their turn.
Great Revolt 1381
So they will raise taxes until the people get mad as hell and refuse to take it any more. The first tax revolt in England was that of Wat Tyler in 1381. The first interval of 309 years was 1690 when because of taxes and a shortage of money in America, on February 3rd, 1690, the very first paper money was issued by the colony of Massachusetts and on December 10th that same year, they became the first American colonial government to borrow money starting national debts. Add another 309 years and you get the birth of the Euro, and the start of this cycle for that was the 19 year low also in gold. This cycle was another reason we called for the all time low in gold would be 1999 and the birth of a new cycle, which should culminate by 2025 in the significant demise of Western political systems..

Friday, November 22, 2013

Why is Timing Consistent Throughout the Ages?

Dear Mr Armstrong,
Thank you for kindly answering my question on data.
No doubt you are aware of Ray Kurzweil and the Singularity Theory. The deflationary impact of technological change, nanotechnology, quantum computers, etc etc seems to be accelerating exponentially. This must be causing a crushing impact on historical cycles.
Can your model realistically take account of this if it is fed by historical data? I hate to use the phrase it might be different this time considering your belief in the predictability of human nature and the performance of cycles in the past.
We have access to knowledge of and perhaps control over human behaviour way beyond anything available in the past, both politicians and the common man.
Even war cycles would seem to be open to distortion as robotic conflict perhaps allows less population upheaval. In other words could there be a qualitative change in the war cycle?
My ultimate problem with cycle theory is there always seems to be another hidden cycle which suddenly becomes dominant or existing cycles unpredictably distort.
Thank you.
Yours sincerely,
ANSWER: I had assumed such things might be the case, but after the model churning everything from ancients times to the present, nothing has changed from a timing perspective. For example, on June 3–4, 1989 became known as the Tiananmen Square Massacre. It marked actually the start of the collapse of Communism in China. By the 9th of November 1989, the East German government announced that all GDR citizens could visit West Germany and West Berlin precisely 158 days later. Everyone attributed the demise to the modern technology. However, it was less than one year following the revolution against Monarchy that gave birth to the Roman Republic in 509BC that we find Democracy being born in Athens as a revolt against its tyrants. The modern technology did not alter the cycles between the fall of Communism in 1989 to the rise of Republic/Democracy in 509BC. From the birth of the American Revolution in 1776 against Monarchy, 13 years later we get the French Revolution.
Timing seems to remain the same. The shift to technology that is reducing jobs is nothing new. That is precisely what the Great Depression was all about. Previously, 41% were employed in farming. The combustion engine reduced the need for labor so by 1980, just 3% were employed in farming. The invention of the automobile wiped out the horse-buggy and carriage industry.
The same took place with the railroads. As they expanded, mail order was created and that reduced the need for local stores. Just like book stores today cannot compete with the internet at Amazon.
The technology causing the change may differ from one wave to the next. Nonetheless, the timing is curiously always consistent throughout the centuries. This is what Joseph Schumpeter noticed and called the Wave of Innovation to explain the business cycles. He provided the fundamental explanation of why there were such waves as some new innovation emerges causing the economy to surge. However, Schumpeter failed to explain why these waves of innovation occur at strange regular intervals from a timing perspective.
We have built the largest collection dealing with monetary history even assembled. This effort was carried out to provide all the data from thousands of years to see what makes the economy move. What emerged from this major effort was that the timing always remains the same. Perhaps there is just a time that it takes for such events to unfold and that remains consistent always for it is not the innovation per se that you are observing, but the human interaction and it simply takes predefined periods of time to cause people to react.

The exponential rise in the debt of the Venetian Empire was 52 years. Look at Byzantium. It fell to Venice and was then ruled by the Latins in 1204, Just 52 years later, Michael Palaiologos comes to power inside the government and in 2 years (1258) he instigated a coup against the influential bureaucrat George Mouzaion becoming joint guardian for the eight-year old Latin Emperor. Then on January 1, 1259 he was proclaimed co-emperor with the help of Genoa who was always against Venice. On July 25, 1261, Michael VIII’s captured Constantinople from its last Latin Emperor and entered the city on August 15th when he was then crowned as a Greek Emperor together with his infant son ending the Latin rule.
Milgram-StanhleyWhy is it 52 years? The timing never changes. The Second Punic war (218-201BC) was followed by the final Third Punic War (149-146BC) precisely 52 years apart. There are countless examples from history regarding this timing (51.6 year wave of the Economic Confidence Model). Technology seems to make no difference. Sounds logical that it should somehow speed up the process. However, that assumption is wrong for news could travel between Rome and Athens in just days, It also assumes if somehow people get the info they will immediately react. There is no proof of that assumption. The studies conducted by Stanley Milgram (1933-1984) prove that logic is faulty. Place one person on the street staring into the sky and people walk by assuming he is nuts. Place 5 people there staring at nothing in the sky and a group of people will form to see what they are looking at.
People create traffic jams because they all have to see how bad the accident was. They may say it was horrible, but they still need to see. There is individual behavior and then there is group behavior. I am only interested in the facts. Trying to figure out the WHY, will be a piece I wrote back in 1979 that we will republish – the Why Report

Monday, November 18, 2013

Can Rates Rise in Deflation?

Can interest rates go higher during a deflationary period. You mentioned in your posts, deflation is gripping Europe and im assuming the same for Asia. Once velocity falls and growth rates contract, is there a possibility of rates going higher, because of taxation and investor demand for higher yields?
ANSWER: Yes. It is strangely a bell curve. Hyperinflation takes place in new governments because they have nothing and can only print. In a mature government, interest rates can rise (1) booming economy with rising demand, or (2) a collapsing economy where nobody is willing to but their paper so they are forced to pay higher rates due to the collapse in confidence. The former is normally aligned with a rising currency whereas the latter is associated with a collapsing currency. Every fundamental has two sides depending upon the capital flows.
This illustration shows it is really a bell curve. At some point rates take off as the economy turns down because confidence collapses.

Friday, November 15, 2013

Muni Implosion -2015.75


If this discussion is happening in Newport Beach, CA, one of the richest cities in the US, how can any US city survive the pension crisis?

ANSWER: Nobody can. This system of unfunded pensions just assuming they will always be able to just raise taxes is collapsing. The morons didn’t do the math. If you retire 100 government workers, you have to replace them. Now you are paying for the retired folks and their replacements. The cost of government rises exponentially. This is why cities will move into bankruptcy to escape pension liabilities and then you have workers who will not work seeing they too will get screwed. That is the vortex that took down Rome. So get your hip-boots ready. A lot of shit is going to fill the streets and airwaves. Watch what happens after 2015.75. We are headed into a muni-implosion. Get rid of muni-bonds. It will become a contagion whereas they will all be painted with the same brush.

Difference Between S&P & the Dow

I  find it interesting how the ECM shows The DOW at three green largely pressing higher for daily. Weekly and monthly BUT the SP is turning red in daily and monthly
Please Explain how the DOW can continue to press much higher as the SP Declines
ANSWER:  The answer is the market is not ready to take off just yet. The difference between the Dow and the S&P is foreign institutional money, which buys the Dow big names. the S&P 500 is the broader market and that tends normally to be more domestic. It will also take off during the boom, but we are just not yet ready for prime time. Most likely we are looking at a turning point in the Jan/Feb period.
Also keep in mind that the Global Market Watch is not the system model. It is a pattern recognition model fully AI functioning recording patterns as it goes from everything and tests those pattern against its knowledge-base. Hence it is more of an alert rather than a trading system.

Thursday, November 14, 2013

The Coming Deflation

DepressionScrip-1 (2)
So many people have been insisting upon hyperinflation, but they are not prepared for the developing deflation. Even most Germans know what is inflation and they are indoctrinated that austerity is better – but is it? The US experience the deflation of the Great Depression and adopted those same austerity policies. There was such a shortage of money that not merely did the dollar rise to historical highs, but hundreds of cities were forced to issue their own money that was legal tender locally just to function.

People only think they know how to protect themselves against inflation – buy tangible assets. But how does one protect against deflation? Sell all tangible assets and just go to cash? Is there a difference between real estate, precious metals, stocks, bonds, and cash? What about capital inflows and outflows? What about movable v static assets?
The answer to this question that is commonly asked is far more complex than one imagines. We are preparing a special report on this topic because everything varies according to capital inflows v outflows. This is a very important study for it is not just bullshit personal opinions. To really understand this we must leave no stone or asset untouched.
We will advise when this is going to be completed.

Sunday, November 10, 2013

Post navigation← Older postsDeflation – The Great Equalizer – Now Greece? Was There a Different TESTED Response in History? YES!

Deflation remains a mystery for many because they just cannot grasp the fact that money supply can increase while prices decline. Their heads begin to spin around and they spit out green pea soup because it is not supposed to happen in their mind. During deflationary trends, money supply can still increase but the contraction is so massive that money supply cannot possibly increase at the same pace as assets collapse as demand shrinks into the sunset.
Deflation can emerge from two primary sources – domestic and international. President Grover Cleveland explained his observation during the Panic of 1893 how capital can flee and hoard but labor cannot. Then if taxes rise, capital is consumed by government and that further shrinks the domestic available money supply.
Japan CPI

In Japan, the government fought deflation in a losing battle for more than 20 years. As deflation emerges, it becomes profitable to hoard money even if it is fiat. Increasing the value of money causes people not to borrow to spend or invest when they see no profit potential. The low rates destroys pension funds and lowers the income of the elderly forcing even them to cut back on everything. The purchasing power of the currency strangely rises regardless of its backing as consumer prices fall even when the “official” supply increases as we saw with the Fed. The price of a lunch in the financial district of Tokyo at the peak was 1,000 yen and today it has fallen to below 100.
greekeuroConsumer prices are now collapsing in Greece falling by 2% in October alone. This is the strongest deflation for over 50 years. Throughout the Eurozone, the official inflation rate is currently at 0.7 percent, the lowest in four years.
Deflation is one of the most difficult monetary concepts to understand because thanks to Keynes he defined it as merely a one-dimensional collapse in demand that could be overcome by increasing the supply of money. However, historical research we have conducted going back to Rome shows that deflation is multi-dimensional and it will NOT be cured by simply increasing the money supply and lowering interest rates. The only way to stop deflation is not institute regulations or lowering interest rates in hopes of stimulating demand with no guarantee the banks will pass that along to the consumer. Without retroactive adjustment of rates as both Tiberius and Julius Caesar imposed, you cannot prevent a collapse in asset values known as deflation. The focus cannot be trying to stimulate future demand, but to address the contraction
Tiberius 4

There was a financial panic in Rome in 33AD that was caused by a cascade failure from many different aspects. Emperor Tiberius (14-37 AD) who had a reputation for being frugal in his expenditures yet unlike modern politicians never raised taxes during his reign. Suetonius tells us in Book VIII that Tiberius acted as advocate in Rome beginning his civil career in separate cases with Augustus presiding, on behalf of King Archelaus (of Cappadocia); the citizens of Tralles (Aydin, in Turkey); and the Thessalians. Tiberius had also undertaken two special commissions; a re-organisation of the defective grain supply, and an investigation into the slave-farms, in Italy, whose owners had acquired an evil reputation by confining lawful travellers, and also harbouring men who hid there as slaves, out of an aversion to military service.
Tiberius’ coinage is rather scarce for there is not a great deal of issues. He even refused the title Augustus (‘Father of the Country’) and prevented the Senate swearing to uphold his actions, for fear of the greater shame when he was found to be undeserving of such honors. He was a complex character and the emperor who presided at that time of Jesus’ execution.
Tiberius 1Tiberius also appeared before the Senate to support pleas by the inhabitants of Laodicea, Thyatira and Chios, who requested help after a devastating earthquake on the coast of Asia Minor. Thyatira (Thyateira), is the modern Turkish city of Akhisar. It lies in the west of Turkey, south of Istanbul and almost due east of Athens. It is about 50 miles from the Mediterranean. In classical times, Thyatira stood on the border between Lydia and Mysia. It was famous for its dyeing and was a center of the indigo trade and this was a key component in the luxury trade. The foreign trade in luxury products of spices, silks, and dyeing with rare colors like purple and indigo included both product from Africa and China via the Silk Road.
The Panic of 33 AD began as a contagion that spread across the entire Roman world. Where the Great Depression of the 1930s began with a banking failure in Austria, this one began with a famous bank failure of Seuthes and Son, which was located in Alexandria, Egypt. There was a loss of three cargo ships in a Red Sea storm. This was combined with a collapse in luxury products they financed from Africa for sale in Rome – ostrich feather and ivory markets in addition to a various dyes.
Virtually simultaneously, there was the collapse of the great trade house of Malchus and Co. of Tyre with branches at Antioch and Ephesus, which went bankrupt as a result of a strike among their Phoenician workmen (early unions) and the embezzlement of senior staff – the business manager. These financial failures set off a contagion that then impacted the Roman banking-house of Quintus Maximus and Lucious Vibo. As news of these problems emerged, a bank run surfaced and spread to other banking houses as confidence collapsed. Rumors spread that many banks were involved especially that of the Brothers Pittius.
Via Sacra Roma Forum
The Via Sacra was the financial center of Rome located in the Roman Forum. It was the ancient Wall Street of Rome in its day. As the financial crisis struck, this thoroughfare erupted in panic with merchants clamoring to save their businesses. The banks were all interlinked doing business with each other much as we have today even creating syndicates..
With the financial chaos rapidly spreading from bank to bank throughout the empire within days, there was also a rebellion that had erupted in Northern Gaul (France). The Romans were also great investors in emerging markets and labor costs were cheap the further you moved from the center of Rome. With large investment in emerging markets, any rebellion in these regions alone sent panic down the Via Sacra. A moratorium of investment and debt had been declared by the provincial government on account of the distributed conditions and now capital could not be withdrawn. This now set off a cascade effect on yet other banks as capital became frozen thanks to capital controls not dissimilar from current conditions in India or South East Asia during 1997 Crisis..
This all combined with the economic decline in agriculture had peaked in 29 AD with the Economic Confidence Model. Thus, there was a bear market in full motion in the primary economic driver – agriculture. Tiberius was confronted by a major financial crisis coming from several directions in the middle of an economic down wave. He responded requiring that one-third of every senator’s fortune be invested in Italian land to support the collapse in land values that were based on agriculture. Thus he also had a real estate crisis to confront. The senators had 18 months to make this adjustment, but by the time the period was up, many senators had failed to make the proper adjustment because prices had been still falling. This deadline occurred at the same time at the bottom of the wave in 33 AD as these additional events unfolded.
Tiberius Tokens
Deflation was in full swing and the value of money rose sharply. Shortages of money began to emerge and we find at this time private tokens start to appear. These tokens are rare and have denominations on the reverse in Roman numerals denominated most likely in the base unit the Roman As. There was no difference in size relating to value so they were purely a representative form of money (value).

During such economic contractions, we often find private script appearing due to severe shortages in money. During the Great Depression in the USA, more than 200 cities issued paper currency because there was a shortage of money. During the US Civil War there was postage currency circulating as coins advertising various companies on the reverse. The backing is a postage stamp because of the massive shortage in coinage. We find the same thing with private tokens being issued because of the shortage of money.1863 Westand Token
In Rome, Publius Spencer, who was a wealthy noblemen in Rome, requested 30 million sesterces from his banker Balbus Ollius. The bank was unable to fulfill his request and closed its doors. You can imagine the financial crisis that emerged. What if Bill Gates went to his banks and wanted a billion and the bank today said no they did not have it. The chaos that would emerge is indescribable.
The banking crisis of 33 AD now spread everywhere within a matter of days. News could travel from Rome to Britain in just 7 days as established from letters found near Hadrian’s Wall dividing Britain and Scotland. During this short period, major banks in Corinth, Carthage, Lyons and Byzantium all closed unable to meet obligations. A full-scale banking crisis held the entire Roman Empire in the grips of sheer panic. The closure of banks along the Via Sacra in Rome would be the equivalent of the Wall Street announcing it closed unable to meet obligations.
The banks began calling in their loans desperately trying to regain liquidity as they always do in a crisis, which fuels the deflation forcing assets to be sold in distress. This collapse in prices as debtors cannot meet the demands of their creditors creates a cascade failure.  This is the heart of the deflation that cannot be prevented by increasing money supply for you cannot increase it in sufficient proportion to the collapse in asset values. This vortex of a debt implosion leads to seizures of assets with forced sales of homes and possessions sending the purchasing power of money even higher (deflation). As money becomes unavailable and its value rises daily, even at the legal limit of 12% for interest rates gave way. We can see the chart of call money rates during the various financial panics in the United States. Interest rates rise tremendously during such early periods of crisis as the “cost” of money rises sharply regardless of what it is at that time and as rates subside, the “value” of money then rises yet demand for loans collapses as lenders also begin to hoard their capital.
As the deflation unfolds, tangible asset values collapse such as real estate and other goods as cash becomes king with few buyers. The Panic of 33 AD gripped the entire Roman World. Tiberius had retired from Rome fearful of the public perhaps because of the economic decline in real estate values in motion from the peak in the ECM – 29.15 AD. Nevertheless, as the crisis of 33  AD emerges, Tiberius sent a letter to Rome with measures to alleviate the crisis that demonstrated his keen awareness of the economy. His decrees ordering senators to invest in land were immediately suspended. Tiberius then ordered 100 million sesterces were to be taken from the imperial treasury and distributed among reliable bankers, but unlike the incompetent US Congress, the money had to be loaned to the neediest debtors. To put this in perspective, a soldier earned about 1000 sesterces at that time and comparing that to military pay today it would be more than $2 billion.
Tiberius was concerned about the economy rather than the bankers who were not primary dealers as they are today capable of blackmailing government. Tiberius ordered that NO interest was to be collected for three years. He also ordered that the bankers accept security that was to be offered at double value in real property taking into consideration how much it had fallen in price by about 50%.
Tiberius brilliantly enabled many people to avoid selling their estates at low prices, which the US Congress just bailed out banks with no strings attached. Tiberius actually stopped the fall in prices by stopping the forced sales and ensuring that the lack of liquidity would be halted. It is true that the weak banks never recovered from the panic. However, most eventually did resume business as usual.
Tiberius’s response was direct rather than indirect as the central bankers do today that help banks at the expense of the economy. Governments wrongly assume that the banks are the cornerstone of the economy rather than the participants. They routinely sacrifice the people for the banks because they are themselves the greatest debtors within society.
Tiberius did not merely increase the money supply as was Bernanke’s response of the Fed or Congress signing TARP with no strings attached. Tiberius lowered interest rates to zero for three years, but this was on outstanding loans not to create new ones with hopes of stimulating demand (Keynesian Economics). Tiberius’ response was substantially different from the quantitative easing we saw in Japan, Europe, and the USA. Lowering interest rates to zero today destroys savers, expends the revenue of banks, but does nothing to suspend the crisis in outstanding obligations. Tiberius’ approach was substantially different and above all – IT WORKED!

Wednesday, November 6, 2013

Coming ECM Book & 64 Year Gold Cycle - 4.3 years change

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QUESTION: Dear Mr. Martin Armstrong:
I´m writing to you from Santiago of Chile, to congratulate you for your amazing research, about the Economic Confidence Model and to ask you:
1. What is the correct model to predict the uptrends and downtrends of the Spot Gold Index?.
2.- What are the main differences between the E.C.M. and the 64-Year Cycle Wave?.
3.- How can I learn more about the E.C.M. and the 64-Year Cycle Wave, to be a star/master trader?.
I look forward to hearing from you as soon as possible.
ANSWER: Each item be it commodity, stock, bond, or real estate, has its own cycle. The significance of the ECM is significant. It is the GLOBAL composite frequency or the cycle of life. What becomes clear is that people will change direction every 4.3 years. They shift their focus from one sector to another and nations. The question becomes what line-up with the ECM will get the attention. Her is our 64 year cycle in gold. The two turning points were 1934 (FDR’s confiscation) and 1998 the low in real terms for gold. Because gold has been “money” during this wave, it responds in the opposite direction of an investment. Inflation means down and deflation means up for whatever is “money” at that time.
The new wave thus began with gold at its historic purchasing power low. The previous 64-Year Wave peaked in 1870 with the purchasing power high in gold. The gold rally that began in this wave formation was the first 13 years into 2011/2012 (intraday/closing). This is why we forecast a 2-3 year decline and the resumption of a bull wave. There will be a near-term high after 2016 but we are in the final stages of the last 2 waves of the ECM that peaks in 2032, These are the Phase Transition waves and we should see greater volatility. The next MAJOR high for gold will be 2032. Ideally, gold should invert. This means the wave 2015.75 to 2020.05 followed by 2024.35 should produce a high in 2024 and then begin to line-up with the ECM. If that happens, then the major high will be 2032, a correction, and then the highest high in purchasing power terms will be 2062 but the dollar may not exist at that time to offer a currency in which to measure that high. We will deal with this issue in the upcoming Gold Report and a new book is coming out on the ECM next year.

Gold the Real Breakout

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Did you imply that a gold bull market really only begins when gold exceeds its 1980 high adjusted for inflation? That would imply that eventually gold outperforms inflation which I do not think it does. Adjusting for currencies and inflation gold would need to about double from here to reach that level. If it ever reached that level wouldn’t that be a sell zone rather than expecting a breakout?

ANSWER: Gold indeed is not linear so it will not track inflation because it is a commodity. This results in bursts of price movement that amounts to catch-ups that get everyone excited assuming it will last forever and it never does as is the case with any commodity. We ran these charts to demonstrate that gold was in a bear market and that it was really declining in a basket of currencies in the 1980s and early 1990s.
Dow Fixed Rate Channel Yearly
What we do see is that gold will eventually exceed the 1980 high in real terms but probably on the third try and not the second. This is just a trading pattern as was the case with the Dow Jones trying to get through the 1,000 level where it was the 4th time that became the charm (1966, 1968, 1973, 1983) . So yes, gold will be a selling opportunity on the next rally that will exceed the 2011 high nominally and test the 1980 high in real terms. Then there will be another correction, and most likely the third rally will be the breakout.
Gold is important to watch because it will signal the real break in public confidence since the Goldbugs will be discredited and the majority will see them as always wrong and will fight the gold rally. That is the REAL fuel necessary to see it rise dramatically. It has absolutely nothing to do with fiat, hyperinflation, Fed balance sheet, or missing gold from Fort Knox.

The Shift from Bonds to Stocks

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PIMCO lost the mantle of the largest fund as capital withdrawals reached $38 billion this year as money moves to equities. The largest fund is now Vanguard. This is part of the cycle shift. While there is likely coming a near-term correction, everything is still pointing to capital flight from bonds and banks into equities. If you are European, who have to be crazy not to buy the US share market given the value of the Euro, the pending bail-ins, and the proposed IMF confiscation of 10% of all deposits to pay for the failed Euro and banks. This is the same shift we saw in the 1929 bull market.