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.