Gold is the HEDGE AGAINST GOVERNMENT, not the hedge against inflation

The Gold Question – Luck v Fate

Posted on February 27, 2014 by Martin Armstrong

QUESTION: Mr. Armstrong, I’m a long time reader and great admirer of your efforts.  I recently read an analysts opinion on inflation that I want to share with you.

This analyst maintains that the Fed’s actions to stimulate the economy has done nothing more than fill the pockets of the very bankers that caused the economic troubles in the form of excess reserves sitting at the Fed collecting 0.25%.

Once the economy gathers enough steam to make lending more profitable for the bankers, he thinks the release of those reserves, in excess of 3.5 trillion to date, will create unbridled bidding for goods and services driving prices higher, thus he wants to buy gold!

I don’t, but he does and I’m sure others will follow.  What I want to know is how you see those trillions of dollars effecting the economy as it comes online?

Sincerely,

-M

ANSWER: Sorry, just nonsense. The dollar is really the de facto currency of the world aside from the fact that it is also the reserve currency. As political unrest continues to rise, capital will flee to the US pushing the dollar even higher. This nonsense about hyperinflation and inflation is getting really old. The lowest rate of hyperinflation among the top 10 incidents is about 400% per month and the worse was Hungary in 1946 that reached over 13 quadrillion % per month.

These people who keep touting well this time inflation will soar so buy gold, have zero historical perspective and if you want to cite the hyperinflations in history, ALL tangible assets rose from art to real estate. In fact, the currency that replaced the inflated mark in Germany was backed by real estate in 1925.

So quite frankly, if you are talking about inflation and gold’s pretend special hedge against inflation, I honestly do not know what drugs these people are taking. There is ABSOLUTELY NO incident in history where gold has EVER provided such a hedge in any sole capacity – NONE WHATSOEVER!!! When a currency goes into hyperinflation, there is no coming out of it. Thus, ALL tangible assets become the hedge – not just gold.

I have stated countless times that gold is the HEDGE AGAINST GOVERNMENT, not the hedge against inflation. It has risen during such periods ONLY when there is uncertainty as to what currency will survive.

Claiming that the $3.5 trillion will rush out and cause ONLY gold to rise is absurd. The vast majority of such money will flock to shares and real estate as it always has. YES they traded stocks in Rome as well and the idea of a corporation comes from Rome.

In the US, $3.5 trillion is just about 20% of the outstanding federal bonds. Add in all the other debt, shares, and real estate, and we are less than 2%. Add in the world, and forget it. It would be like putting a drop of oil in the ocean.

Gold is going to rise WHEN capital realizes that we have a geopolitical problem and there is uncertainly on the horizon as to what monetary system emerges afterwards. This is the real issue – not inflation. Plain and simple, gold reach $875 in 1980 and the Dow 1,000. The Dow has reached almost 17,000 and gold at its peak below $2,000. From a plain numbers game, the Dow was a far better hedge against “inflation” than gold since 1980. Why these people keep saying the same thing over an over again and somehow expecting a different result (this time I will be right) is a mystery. This is about surviving – not promoting some scheme or sick distortion of history. Why keep preaching the same thing costing people their future with no remorse is irresponsible. That is not an analyst – it is a promoter.

It is equally important to understand WHY you lost money as it is when you make it. If you do not understand how things truly function, then your wins will be sheer luck and the losses will become fate.

Kondratieff, ND

By Martin Armstrong

Nickolai D. Kondratieff

(1892 – 1938)

Nikolai Dmyitriyevich Kondratieff (1892-1938) was a Russian economist. Following the 1917 Russian Revolution, Kondratieff was an economics professor who was called upon by the new government to create the first Soviet Five-Year-Plan. Kondratieff was thus given the opportunity to draw the economic plan for Russia he assumed upon a blank slate. Kondratieff explored the past to gather empirical data upon which to construct the new economy. What he observed was the cyclical nature of society through its booms and busts, and that knowledge would later cost him his life.

Kondratieff published in 1926 his conclusions after investigating history. He entitled his work, “Long Waves in Economic Life.” Kondratieff discovered that there were progressive wave formations running the span of 50 to 60 years in length. He was reviewing the time span beginning with 1789 up to the date of his publication in 1926. He described three great waves with highs about 1820, 1864, and 1920 that were closely linked to wars. However, we must also keep in mind that during this time period, the economy even in the United States was largely about 70% agrarian. Even by 1929, the United States was still about 40% agrarian. This naturally provided an undertone to his work.

Even without war, adding the maximum time frame of 60 years to 1920 brings us to 1980, the peak in OPEC oil and gold. Kondratieff effectively reached his conclusion that the economy was driven by cyclical activity and thus this was implicitly against Hegel and Marx insofar as that the new government would not be able to reach some perfect state of synthesis. For this reason, Kondratieff’s work was seen as a criticism of Stalin’s goals. He was arrested in July 1930 and accused of being a member of a non-existent “Peasants’ Labour Party” and he was sent to prison for 8 years. Stalin wanted him dead and expressed that in a letter dated August 1930. When his 8 year sentence was complete, he was put on trial again with new charges during the “Great Purge” and sentenced to 10 years in prison.

However, upon sentencing September 17th, 1938, he was taken outside and then shot to death at the age of 46. Kondratieff died for his research as a political prisoner for his research was something that the government did its best to destroy and to prevent from influencing anyone.

Kondratieff’s work was compelling and contributed greatly to the Austrian School of Economics that first began to develop the concept of a Business Cycle. The general central principle of the Austrian Business Cycle Theory is concerned with a period of sustained low-interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment. Within this context, the theory supposes that the Business Cycle unfolds whereby low rates of interest tend to stimulate borrowing from the banking sector and thus then results in the expansion of the money supply that causes an unsustainable credit ­source boom which leads to a diminished opportunity for investment by competition. Therefore, at the top, this causes speculative misallocation of resources that manifests into a bubble-top. The decline unfolds as a “credit-crunch” creating the speculative bust and recession. This contraction in credit shrinks the money-supply completing the cycle to return to its prior state.

The usual criticism of Kondratieff’s work has been the absence of any empirical cycle that is symmetrical. This was the criticism of Mitchell who argued that since economic crisis did not appear with clockwork regularity, then any “reoccurrence is plainly mistaken.” It is true that the cycle discovered by Kondratieff was by no means symmetrical when there were only three waves that varied from 50 to 60 years. However, this expectation of rhythmic perfection illustrates the lack of understanding about cyclical wave structures. Such perfect waves with regular intervals are known as a Transverse Wave whereas waves that differ in wavelength (distance between peaks) are known as a Longitudinal Wave. We will examine these two types of waves later on. It is sufficient to state at this time, that these are two fundamentally different wave structures.

© Martin Armstrong 2011 All Rights Reserv

Ides of March to Mid April- high volatility

Caesar – Beware the Ides of March – Were the Conferences Targeted to this Period?

Posted on February 25, 2014 by Martin Armstrong

To all those old clients asking if we picked the timing for the conferences linked to the geopolitical turmoil in Ukraine as we did in 1987 with the Crash and 1985 with the turn of the ECM, the answer is always yes. We use the model to target when the conferences should be most interesting since they are always a two-way street of discussion. After all, it is better to leave with something to remember rather than just a pen.

All the world financial markets are going to pay close attention to these events in Ukraine. Why do I have close ties with Ukraine? Who knows? Perhaps fate always seems to put me in the middle of everything. I seem to have friends in every hot spot since the 1980s.

Nevertheless, while it may not be precisely the Ides of March (15th), it is time shortly thereafter that all markets have been showing up as a unified target period since last summer. This indicates there there is something external causing this to develop. It is clear that the emerging markets are in a serious decline and this INCLUDES the Russian economy. The worse it gets, the greater there is always a need for an external enemy. This comes directly out of our well researched political play-book. It is standard practice and we should neither be shocked nor blame Russia for responding the same way every nation has for the last 6,000 years.

Here are the Arrays for the Euro, Dow, and Gold. Note that they are all targeting panic cycles at the end of March. Therefore, to get this sort of unified coordination implies an external source. This should make these conferences very important and exceptionally timely.

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Ukraine – The Spark for World War III ?

Posted on February 25, 2014 by Martin Armstrong

This reminds one of Thomas Jefferson’s famous saying: I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.

“Societies exist under three forms sufficiently distinguishable. 1. Without government, as among our Indians. 2. Under governments wherein the will of every one has a just influence, as is the case in England in a slight degree, and in our states in a great one. 3. Under governments of force: as is the case in all other monarchies and in most of the other republics. To have an idea of the curse of existence under these last, they must be seen. It is a government of wolves over sheep. It is a problem, not clear in my mind, that the 1st. condition is not the best. But I believe it to be inconsistent with any great degree of population. The second state has a great deal of good in it. The mass of mankind under that enjoys a precious degree of liberty and happiness. It has it’s evils too: the principal of which is the turbulence to which it is subject. But weigh this against the oppressions of monarchy, and it becomes nothing. Malo periculosam, libertatem quam quietam servitutem. Even this evil is productive of good. It prevents the degeneracy of government, and nourishes a general attention to the public affairs. I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical. Unsuccesful rebellions indeed generally establish the incroachments on the rights of the people which have produced them. An observation of this truth should render honest republican governors so mild in their punishment of rebellions, as not to discourage them too much. It is a medecine necessary for the sound health of government.”

Gold- weekly level the major barrier overhead remains at the 1420-1425 level.

Gold All Lathered Up – But Are We Ready to Go?

Posted on February 24, 2014 by Martin Armstrong

The key resistance in gold on a nearest futures basis stands at the 1400 zone on a technical basis the weekly level. On our model, A Daily Bullish Reversal stands at 1344 nearby while on the weekly level the major barrier overhead remains at the 1420-1425 level. Of course, the gold promoters always proclaim a bull market and quickly forget every decline. Often they seem just like politicians always preaching their own self-interests with little regard for the financial survival of their victims. They act as if you will miss the ENTIRE bull market unless you buy immediately today.

Timing wise, it still looks like the major SUSTAINABLE rally comes AFTER the turn in the ECM 2015.75. From a broader perspective, we really want to see a low with the top of the ECM into early 2016 for that would set the stage for a serious rally thereafter that may at last really breakout above the 1980 high in real terms – not simply nominal terms.

However, the gold promoters never look at the long-term and how the market plays a role within the entire global perspective. The crisis in Ukraine and the LIKELIHOOD that we will see Russian intervention can cause a spike rally in gold. We are not going to be out of the woods on this crisis at least until the after the week of April 7th. That seems to be the real target in time.

Gold will not look impressive unless we see it exceed the 1425 level on a Weekly Closing Basis. Remaining beneath that level into April only warns that we can still see new lows into next year before the whole thing goes nuts starting in 2016. Keep in mind that a crisis in Ukraine with a Russian invasion will send the dollar higher. Russia is already saying the overthrow of the Viktor Yanukovych was illegal despite the fact the people did so in great mass without ANY weapons from the West. The future rally we see for gold has NOTHING to do with hyperinflation, the Fed or other nonsense. This is now in the hands of geopolitical uncertainty and that is where gold comes in – it is as I have always stated – a hedge against governments not inflation as clearly demonstrated with the above chart.

Real Democracy

Posted on February 24, 2014 by Martin Armstrong

Ukraine stands at the threshold of showing the world a new way of government – Real Democracy where the PEOPLE rule over the Bureaucracy. The political body MUST rotate and that includes the head of state once a year elected from the people and they will then be the check and balance against REPRESENTATIVE government that masquerades as Democracy.  This is the ONLY form of government our research has demonstrated could last at least for a few hundred years. Human nature is such that history warns there are so few people who are honorable and once they get a taste of such power, they do everything to hold on to it. There are so few Cincinatius who would rise and accept the office of Dictator for one year and hand it back to return to his farm.

Corruption can only be reduced by eliminating taxes that eliminates most lobbying. Eliminate career politicians and you eliminate the taking of bribes and you will eliminate the corruption of human nature that will consume those in power as Yanukovych has displayed. What drives a man to throw everything away for such wealth as if it can be hidden for life? The documents demonstrate that the elections were rigged so Russia’s claim that only Yanukovych has a right to rule is insane. He gathered such wealth figuring he would just always rig the elections and stay in power. He two sons began a criminal extortion ring. You simply cannot have career politicians who never leave office. This is absolutely critical and it appears we are headed into a vortex of war from which who knows what will survive. Representative forms of government with lifetime career politicians are no different than monarchy led by kings.

Yanukovych Opens Fire of Civilians – the Trump Card is Always War, Dollar

 

Posted on February 20, 2014 by Martin Armstrong

Reply

Yanukovych will go down in history as a ruthless criminal. He has effectively ordered the massacre of civilians. Gun shots filled Independence Square and now more than 100 protesters have been murdered according to their reports. All out civil war is in motion and I fear that with this War Cycle turning up here in 2014, this incident will be the spark that ignites this cycle. Expect this to really escalate after the summer. This could result in the same shift in capital flows into the dollar that we saw during World War I and II.


The huge two spikes up in the dollar were caused by European War. The sharp rise against after World War II is the devaluations of currencies and the rise in the dollar with Bretton Woods. The pattern for the dollar does not show a long-term bear market. This pattern is indicative of a market that has yet to peak. The greatest spike rallies in the dollar are war driven.


The rise in the British Pound to all time record highs against the US dollar took place also during the US Civil War. So to all those dollar haters who harp about money supply, the Fed, and just about everything else imaginable as to why the dollar should be worthless, the trump card is ALWAYS war.

Dollar - China Russia versus Europe

US Dollar Holdings Rose in December to $5794.9 billion

Posted on February 18, 2014 by Martin Armstrong

Chinese holdings of US Treasurys declined in December by a modest $48 billion. China’s holdings of dollars dropped from $1,316.7 billion to $1,268.9 billion. The US Treasury holdings by foreign entities increased in December, from $5,716.9 billion to $5,794.9 billion. This is still showing the rising trend on a global basis for the dollar. 

The US claiming they will defend Japan against China has shifted China’s strategic reserve position as their economy declines while the increase in dollar holdings came from Europe for fear of the Euro and rising tensions of war and civil unrest. So far, this is a trend that is lining up with the Cycle of War. We would expect dollar holdings to decline among China and Russia while Europeans will be buying everything they can get their hands on as was the case during WWI and WWII.

Random Walk Theory

Global Warming & Random Walk Theory Have a Lot in Common – They are Both Nuts

Martin Armstrong

Global Warming is clearly a bunch of hot air. It seems to be a theory made up by a bunch of guys that got drunk one night and said – Hey man! It is warmer this season than last! Wow! We must have caused that man! Word! This is the coldest year day after day on a consistent basis I can remember in my life. Environmentalists and Democrats love to claim that there is a “97 percent” consensus among climate scientists about global warming. However, they choose to ignore the fact that 95 percent of those climate models predicting global temperature rises have been wrong.

This entire theory is nonsense and it arises from the same idiotic concept that fails to recognize that there is a cycle to everything from the way your thoughts are formed in your brain (brain waves), the beat of your heart, to the 4 seasons. This is up there on the list a really stupid ideas like the random walk hypothesis that was devised because the markets went up and down rather than in a straight line and people could not predict that.

The Random Walk Theory stating that stock market prices evolve according to a random walk like a drunk staggering down the street making them unpredictable was the theory to explain total failure to understand how the economy functions. The concept can be traced to French broker Jules Regnault who published a book in 1863, and then to French mathematician Louis Bachelier whose Ph.D. dissertation titled “The Theory of Speculation” (1900). These same ideas were later developed by MIT Sloan School of Management professor Paul Cootner in his 1964 book The Random Character of Stock Market Prices. The theory was then popularized by the 1973 book, A Random Walk Down Wall Street, by Burton Malkiel, who was a Professor of Economics at Princeton University. This was used earlier in Eugene Fama’s 1965 article “Random Walks In Stock Market Prices”, that was the foundation for his Ph.D. thesis. The theory that stock prices move randomly was earlier proposed by Maurice Kendall in his 1953 paper, The Analytics of Economic Time Series, Part 1: Prices

Both theories of Random Walk and Global Warming are failures to understand the cyclical nature of the universe and that we oscillate between two extremes in everything. We have even male and female. There are two opposites that make everything function right down to our concept of God and the Devil, good and evil, etc.. These crazy people actually proposed that the government spend money to create a machine to reverse global warming. Simply breathtakingly brilliant

Cycle of War & Political Economy. Political Model-51.6, Economic Model 72 , Real Estate 78 years

 

Martin Armstrong

Copyright Martin Armstrong all Rights Reserved January 8th, 2013

At our conferences around the world, we have discussed the Cycle of War and how this too has been incredibly accurate demonstrating that what may appear to be random, is really highly ordered chaos. This turns in 2014. To set the record straight, so far there appears to be no WORLD WAR that will begin. This appears to be separatism and civil unrest on the rise (see European Report $350). Nevertheless, there is a risk of international war but this comes from RUSSIA! The problem with Russia is that there is still the old way of thinking empire equals power. Given the chance, Putin would sweep into Europe in a heart beat. The KEY is always economics.


It has always been a debate about the chicken or the egg and who came first. In this case, the barbarian invasions really began at the peak of the Roman Empire where Marcus Aurelius (161-180AD) was fighting on the border with the Germans where he wrote his Meditations. That was the peak of the Roman Empire and the beginning of the decline and fall starts with his death. As the economy turns down, the barbarians began to smell blood. That is when the barbarians were at the gates. It is always the decline of the economy that opens the door for your enemies. How stupid the USA is relying on political foes to buy their dead is beyond brain-dead. Do you go to them and say, “Gee can I borrow a trillion to fund my army to defend against you?” The political risk we have is that Putin is still in the Empire Mindset. Even China has figured out that occupying your neighbor’s hill is not economically beneficial. So our risk of war lies with Russia – not China. That risk is dramatically increased with the Sovereign Debt Crisis for in the midst of that means the inability to fund an army. That is how Rome fell.

The barbarians sacked Rome in 410AD. The term “vandalize” refers to the Vandals of North Africa who sacked Rome. They tore even the copper off the roof of every temple. What they did to Rome was rape it of its value. This is where the term has survived centuries that people “vandalize” by destroying. The Vandals will always be remembered for what they did to Rome. However, what they did would NEVER have taken place but for the economic decline. This is the risk of history that somehow we just never learn. We can have homeland security harassing teenage girls and worried about hair gel in your bags getting on to a plane. All that is pure nonsense. It is the economy that poses the greatest risk for that opens the door to geopolitical risk. So forget the 19 guys and the camel. If we do not get our economy under control, they will be speaking Russian in a lot more places. For now, it appears that we will be facing rising civil unrest and separatism.

Many have written to ask where does the Political-Economy Model stand right now for the West. The answer to that question is the epic turn appears to be 2016. Bretton Woods took place in 1944. Adding 72 years brings us to 2016. This model has been uncanny in predicting political change incorporating the same frequency for volatility. The Russian Revolution of 1917 was right on target with the fall of the Berlin Wall 72 years later in 1989. This strongly warns that this wave in the Economic Confidence Model due to peak 2015.75, will be extremely important. This is the time frame we have been looking at for the past 30 years for the next Sovereign Debt Crisis. Certain trends simply cannot be sustained beyond 72 years without change. This time that change is coming by dragging the politicians by the hair cave-man style. How intelligent people just cannot see the problem with borrowing perpetually and never having any intention of paying off the debt, it’s simply unimaginable. The previous cycle turning in 1872 and that led to what is known as the “long depression” of the 19^th century everyone concedes lasted for 26 years. This is why the real estate model is 78 years. It too is closely aligned with political turmoil that always brings structural change.

Consequently, we are looking at 2014 for the beginning of a rise in separatism and civil unrest around the west. Then we see 2016 and the start of a nasty economic decline. We could see things get real bad during the 2016-2020 phase. That may actually be the bottom in the European economic meltdown. Here is a chart of the array for the German 10 year bond interest rates. It is lining up with the 23-26 year recession cycle from the start of the Euro. It does not matter. The politicians will not do what is best for the people. This is still about trying to retain power as is. Like Putin who cannot let go of Empire Building, Western Politicians cannot let go of Marxism. They do not understand how to run without saying “vote for me and I will give you this even if we do not have the money!”

Emerging markets

Economic Confidence Collapsing to new lows in Thailand

Posted on February 7, 2014 by Martin Armstrong

Reply

The local press in Thailand are reporting the collapse in economic confidence among local Economists’ with respect to the overall economy in Thailand. This is the lowest it has ever been in the past three and a half years. Our models clearly demonstrate that we are looking at a continued economic slide especially among emerging markets that will put greater pressure behind a rising US dollar. The European banks have a total exposure of more than $3 trillion in emerging markets. The economic conditions are worsening and this will only increase the pressure on civil unrest against a government that is also seen as corrupt in Thailand.