Separatist Movement in Spain

Posted on May 28, 2015 by Martin Armstrong

The formation of Spain dates back to the marriage of the Catholic Monarchs Queen Isabella I of Castile and King Ferdinand II of Aragon (Catalan). They were both from the House of Trastámara and were second cousins, being both descended from John I of Castile. They married on October 19th, 1469 (1469.8), in the city of Valladolid. It was this marriage that united both kingdoms under the same crown and thus creating the modern state of Spain.

Today, there has been a rise in separatist movement in Spain to redivide the nation that was once formed by this marriage for political power. The Catalan Independence Movement or the Catalan Separatist Movement is a political movement, derived from Catalan nationalism, which supports the independence of Catalonia or the Catalan countries from Spain and France. This region was a coastal territory of the Crown of Aragon, However, the Crown of Aragon lost distinctive rules, institutions and laws at the end of the War of Spanish Succession in 1714, when Philip V (1683 – 1746) of Spain issued the Nueva Planta decrees, a centralized Spanish rule by sheer political force. Catalan lost its identity from a legal perspective at that moment.

There is little doubt that the roots of independence in Catalonia runs deep for there is not merely a different culture, but also a different language which separates the people from the rest of Spain.  The first serious struggle for Catalan independence began to materialize after 19 intervals of the 8.6 year cycles dating back to 1640, there was the first unsuccessful Catalan Republic following the Reaper’s War. During the subsequent War of the Spanish Succession (1701–1714) the Catalans had hoped to salvage their institutions of home rule, despite the centralizing Bourbon pretender to the throne, rather than achieving outright independence.

In 1898, Spain lost its’ last major overseas colonies (Cuba, Guam, Puerto Rico, and the Philippines) in the Spanish–American War. This event actually began a rapid collapse of the economy and confidence evaporated. This was generally perceived as a disaster in Spain, undermining the credibility of both the government and its associated ideologies and almost leading to a military coup d’état led by Camilo Polavieja. It was the Spanish-American War that began the economic decline in Spain and from this event there began a rising tide of civil unrest.

The Spanish government attempted to reestablish its importance and sought to conquer Morocco (Melilla War) which failed. There was tremendous civil unrest caused great discontent at home which ended in a revolt in Barcelona, known as the Semana Tragica (July 25th – 2 August 2nd, 1909). This Catalonia revolt of the lower classes of Barcelona, backed by the anarchists, communists, and republicans, rose up against what they considered the unjust methods for recruiting soldiers. The government declared a state of war and sent the army to crush the revolt and the people in Barcelona, causing over a hundred deaths and the execution of Francisco Ferrer. The people tried to organize a national strike against the government, but this failed because the unions could only mobilize urban workers.

Eventually, the Spanish army was defeated by the natives of Morocco on July 22nd, 1921. The military discontent began to rise following this defeat. There was also a rising fear of a proletarian revolution, and a rising nationalist movement creating great civil unrest. Then on September 13th, 1923, Miguel Primo de Rivera (ruled 1923-1930), Captain General of Catalonia, orchestrated a coup d’état, after issuing a manifesto blaming the problems of Spain on the parliamentary system. He deeply believed that it was the politicians who had ruined Spain and that governing without them he could restore the nation.

Alfonso XIII backed the General and named him Prime Minister. Primo de Rivera and then proceeded to suspend the Constitution and assume absolute powers as a dictator abolishing all other political parties. During this time, he greatly increased government spending on business and public services, which caused his government to go bankrupt. He lost the support of the military and faced serious health problems. Opposition to his regime was so great that Alfonso XIII stopped supporting him and forced him to resign in January 1930

In 1928 exiled Catalans in Cuba from the coup d’état of 1923, drafted a Provisional Constitution of the Catalan Republic. It would come to a head with the 1931 Sovereign Debt Crisis. It was at this time when we begin to see the formation of the first political parties to define themselves as pro-independence for Catalonia. Then it was during the First World War when Catalan Volunteers bore the pro-independence flag when they fought on the Allies’ side. The same ensign headed a text addressed to president Wilson late in 1918, calling upon him to review the Treaty of Utrecht. They wanted the United States to support the repeal of the treaty that allowed Spain to abolish Catalonia’s home rule inside a centralized unitary State.

The beginnings of separatism can be traced back to 1931 and the Sovereign Debt Crisis that moved a coalition of Catalan nationalist parties to form and was the most voted force in Catalonia in the Spanish municipal elections that triggered the proclamation of the Second Spanish Republic. With the fall of the monarchy in 1931, by 1932 Catalonia was granted a statute of autonomy and home rule institutions, which lasted until the Spanish Civil War which began in July 1936 and officially ended with Franco’s victory in April 1939 and his subsequent dictatorship.

The Spanish Civil War, was a civil war fought from 1936 to 1939 between the Republicans, who were loyal to the democratic Spanish Republic, and the Nationalists, a rebel group led by General Francisco Franco (1892 – 1975). The Nationalists won, and Franco ruled Spain for the next 36 years, from 1939 until his death in 1975.

The Franco dictatorship was based its public ideology on Spanish Nationalism and Catholicism, abolished home rule and discouraged regional cultures. Following Franco’s death in 1975 and the Spanish transition to democracy, Catalan autonomy was restored in 1977.

Catalan Nationalists have governed the region most of the time since then, and those calling for full independence have had their parliamentary group since 1980. Nevertheless, there has been a significant shift since the 2011.45 turn in the Economic Confidence Model. Open demonstrations began on September 11, 2012 and September 11, 2013 there were massive demonstrations with more than 1 million participants calling for independence for Catalonia.

Catalonia is committed to a referendum on independence, and 55% of it is composed of openly separatist parties. The Estelada flag, in its blue and red versions, has become its main symbol.

 Spain itself has followed the Economic Confidence Model rather nicely. The whole independence movement was set off by the Sovereign Debt Crisis of 1931. The discontent rose sharply and this ultimately led to the Spanish Civil War starting in 1936.

The the beginning of the economic problem in late 1929 followed by the Sovereign Debt Crisis in 1931, the movement toward civil unrest and the independent movement of Catalonia followed the 8.6 year frequency as well. This 51.6 year wave reached its peak in 1977 and that is when we find following Franco’s death in 1975, that there was not just a Spanish transition toward democracy, but it was precisely on time for Catalan autonomy was then restored in 1977.

We can see that the subsequent 8.6 year waves are:

 1985.8, 1994.4, 2003, 2011.6, 2020.2, 2028.8 and 2037.4

It was from the 2011 turning point that there was a rising tide of independence movement with Catalonia to separate from Spain. One can easily see the cultural difference between Barcelona and Madrid. Barcelona is perhaps the cleanest city in Europe with wide streets and a vibrant culture that is distinctly different. It appears that we should expect the rising separatist movement to continue with the turn in the ECM 2015.75 for this will be 4.3 years from 2011.6 moving into a high for 2020.

Sine Waves

The Schema Frequency

Posted on May 29, 2015 by Martin Armstrong

There are actually three dimensions to the Economic Confidence Model and no, I have never published the third for security reasons. This is the dimension that identifies the sector coming into focus. The wave function of the ECM is far more than just two dimensions, for it is this third dimension that introduces complexity and tests the mind of reason. Comprehending that there is complexity is the first step. How to unravel the complexity takes an ability to see multiple dimensions in your mind, looking through them like a transparent veil to make out the image on the other side.

Those who cannot grasp that there is a business cycle seem to lack the understanding of multiple disciplines. Cyclical wave patterns occur throughout nature, which includes ocean waves, sound waves, and light waves just to start. This is how energy moves, for this is the lifeblood of everything since energy can neither be created nor destroyed.

Next, we must understand the wave function. Altering the wavelength produces a different effect in nature, which also applies to human society embedded within this third dimension. Consequently, panic cycles have different frequencies from benchmark cycles and then we have positive and destructive inference within a wave formation that can alter the amplitude creating a Phase Transition or cancelling everything out to produce the absence of an event.

Those who refuse to acknowledge that there are definitive wave motions within human society which materialize as our business cycle representing human interaction, are generally ignorant of the work in physics that applies to everything. They cannot understand wave motion and thus are unable to see complexity. They simply declare that the business cycle is not inevitable and assume they have the power to alter the world.

To understand cycles, we need to understand the basic formation of a sine wave or sinusoid, which is a mathematical curve that describes a smooth repetitive oscillation – a cycle. It is named after the function sine. The wave occurs often in pure and applied mathematics, as well as physics, engineering, signal processing, and many other fields including economics. Its most basic form as a function of time (t):

Key:

• A = the amplitude, is the peak deviation of the function from zero.
• f = the ordinary frequency, is the number of oscillations (cycles) that occur each second of time.
• ω= 2πf, the angular frequency, is the rate of change of the function argument in units of radians per second
• ℘=the phase, specifies (in radians) where in its cycle the oscillation is at t = 0

(When ℘ is non-zero, the entire waveform appears to be shifted in time by the amount ℘/ω seconds. A negative value represents a delay, and a positive value represents an advance.)

The sine wave is tremendously important in physics for it retains its wave shape when added to another sine wave of the same frequency and arbitrary phase and magnitude. This is where the complexity arrives, for each instrument possesses its own unique frequency. In this respect, the Economic Confidence Model is a composite of all frequencies at the global level, making it incredibly important internationally. The sine wave is the only periodic waveform that has this property to retain its wave shape. This property leads to its importance in Fourier analysis and makes it acoustically unique as well.

Yet, there is such complexity in mapping the world economy it bends one’s perspective of the world and compels you to open your eyes to see the whole rather than the prejudice of the domestic view. Yes we have the fixed transverse appearance of the Economic Confidence Model that represents the global business cycle. Then we have the oscillations and correlations of the individual nations and individual components (markets/economics) .

The oscillation of an undamped spring-mass system around the equilibrium is a sine wave. However, at the same time we have a longitudinal wave with interesting complex patterns. So we have many variations of cyclical formations combining to produce a new view of the world around us. It is time to open out mind and our eyes to a new age of understanding. Instead of the Atomic Age, we need to embark on the Cyclical Age as the next frontier of exploration.

At worst we face a 72 year cycle of Economic Totalitarianism

Deflation When Will It End?

Posted on May 26, 2015 by Martin Armstrong

QUESTION: 

Dear Martin,

It is CRYSTAL clear that your call for a deflationary cycle has been right on the mark. No one else saw it coming. The changes that are part of this were not as visible even a few years ago like they are now. (Of course they were to you!) I can see the economy starting to decline now, yet prices are rising due to business regulation and business focusing away from capital investment. It costs companies more to do business so those costs are passed along to the consumer.

I see the rise in taxes on everything for the consumer creating the decline in disposable income. Cash is afraid and being hoarded, supporting the commensurate shrinking of the money supply, liquidity is drying up in parts of the stock markets, and inflationary government expansion never seems to quit, sucking the life out of the productive aspects of our society.

If the economy turns down as you believe this fall, tax revenues are going to collapse. Then what? Taxes to the moon? With all of these trends firmly entrenched, when and how will the deflationary cycle end, if ever? If we are to get an inflationary cycle before the crash and burn, what could possibly cause that? Or do we just go straight to crash and burn starting in the fall? Thanks for all you do.

Best, T

ANSWER: The deflation comes from the rise in the cost of government in addition to the collapse in leverage. As governments with power turn to extracting more from the people rather than weak government, as was the case with the new revolutionary government in Germany during the 1920s, you never get hyperinflation but massive deflation. Their own power leads them down the path of suicide. Of course that can migrate to the full economic totalitarianism akin to Communism. Whether you technically own your home and are taxed twice its value or the state owns it and allows you to live there, is just a technical point. The bottom-line is both are deflationary – not inflationary.

However, while this is typically the first wave, the second wave of inflation comes when CONFIDENCE in government collapses. This can take place with a full length cycle of 72 years as was the case with Russia (1917 – 1989). You will recall that the volatility portion of the Economic Confidence travels in waves of 6 whereas that frequency builds into groups of 12 forming the major volatility wave of 72 years. This in finance is known as the Rule of 72. The rule number (e.g., 72) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. It is interesting that this appears in volatility.

Therefore, at the worst we face a 72 year cycle of Economic Totalitarianism. However, the admixture of the fact that about half the world has already collapsed in 1989, we have a 26 year cycle which from 1989 brings us to Big Bang in 2015. We can see this materializing before our eyes and this is what the crash in government in the West is all about – the collapse in Socialism. We have a change for a reversal of this trend in 2016 with the US Presidential election. Yet clearly, the USA has peaked economically and Obama has produced perhaps the worst presidency in American history since after winning the Nobel Peace Prize, he has trashed the entire world no less advocating bombing many region.

Consequently, we have a rare opportunity to prevent a 72 year wave of Economic Totalitarianism, but the price will still be the economic decline of the West as the financial and economic power being the Financial Capitol of the World migrates to China. That is inevitable.

So the deflation comes to an end when people run for the hills and begin to buy anything tangible. In the old Soviet Union, people do not expect social benefits from government and are better prepared to be self-reliant. The same is true in China. In Europe, Japan, and the USA, the people are not self-sufficient as a whole and will suffer the withdrawal symptoms of socialism, which arguably has been far more damaging than communism where people expected nothing. Socialism replaced the family structure entirely so children do not save to support their parents in their old age – that’s government job they have been told. Parents are having to support their children into their 30s since they cannot find jobs in their field of study or any job at all as in Canada and Europe.

Keep in mind that deflation has nothing to do with the supply of money. That is the problem with most analysis. When you correlate everything, you see that government increases the supply of money in response to the collapse in CONFIDENCE not the other way around. With that collapse, we in the West will have to learn not to rely upon government and reemerge as self-sufficient to save the day at least on a personal level.

The abolishment of cash is extremely dangerous. I have been warning for years that we would NEVER return to a gold standard – we were headed straight into electronic money. That is where government becomes the Economic Dictator as they try to retain power over their imploding system hallmarked with corruption. They will seek to shut down the underground economy and that includes the drug trade. They are trying deliberately to prevent anyone from buying or selling without government approval and this is one of the very arguments to eliminate cash along with 100% tax collection. Yet this is how the West is committing suicide – extinguishing the global economy.

November 21st, 2018, which will be the Pi target that on previous waves produced 911 & the very day of the Greek crisis in 2010

Martin Armstrong
May 20th, 2015

Why Europe Will Lead the Charge to Eliminate Cash – The Next Step in Global Meltdown

Europe will lead the world into this Economic Totalitarianism because government is now desperate to retain the Euro. If the Euro collapses, so will Brussels. The government exists solely because of the Euro.

The fatal design of the Euro is the key. The failure to have consolidated the debts of all individual member states has been the worst possible mistake perhaps ever made in this post-Great Depression era of New Economics where government lawyers assume they can just write a law and that will be followed as some new modern dictator.

Because of the failure to consolidate the debts, the reserve of the banks had to then be politically correct to conform with Brussels holding a piece of all member state debts. That meant that the defaulting in part or in whole of individual sovereign debts of member states undermined the banking system. This would be as if in the USA bank reserves were made up of state debts. If one state failed, everyone would scramble to sell the banks who had the most.

Since Brussels will not reform, as Einstein put it correctly that you cannot solve a problem with the same line of thinking. This whole idea of negative interest rates is just following the same Keynesian concept that lowering rates will stimulate demand. The missing element is CONFIDENCE. If you do not believe you will make even 1%, you will not pay 0%. While they keep lowering rates to stimulate borrowers, they are wiping out the elderly who now cannot live from their savings reducing their spending destroying the entire idea of pensions and retirement (the social contract). The lack of CONFIDENCE prevents new businesses from forming and therein results in the lost generation of youth who cannot find a job. The elderly are forced to work so there becomes a shortage of jobs resulting in higher unemployment among the youth.

Add to that trend wiping out the elderly and the youth, we then have the rising tensions against foreigners everywhere because they see them as taking precious jobs as they migrate to their country. It becomes a vicious cycle that cannot be broken with the same line of thinking.

This is why governments are still using the same line of thinking of negative interest rates and going to the next step. They cannot meet their budges as tax revenues decline with economic activity, so they go off hunting money causing the global economy to shrink even more. As they hunt money, people hoard and invest even less. They tend to buy assets to get off the grid. To further this effort, governmental thinking then arrives at the solution to eliminate cash forcing the end of the underground economy and 100% tax collection.

However, Brussels knows they have a real crisis in European banking. However, this crisis is monumental and cannot be solved with the same line of thinking that has caused this insane nightmare. Obviously, eliminating cash will prevent people from causing a bank run if a member state defaults. The smart money is trying to get out as fast as it can buying rare art, coins, stamps, antiques, real estate, whatever. This is the only way out for when they eliminate cash, chances are they will impose CAPITAL CONTROLS and prevent the movement of money out of a country. That will be the traditional next step this same line of thinking leads to.

So in the end, governments (not Rothschilds) are in a fight for their very existence. They will incite civil unrest to rise sharply between 2015.75 and 2017. We also have to be concerned about the outcome for November 21st, 2018, which will be the Pi target that on previous waves produced 911 in New York and the very day of the Greek economic crisis in 2010. Geopolitically, Obama has undone everything that has been done to make the world safer. He ruined the European economy with his sanctions against Russia and created the alliance now between Russia and China in military action and drills. The USA might be able to defeat Russia on a conventional battlefield, but they cannot defeat China on the same terms. Meanwhile, the strongest economy in Europe, Germany, constitutionally is not allowed to have a big military force. Brussels is talking about trying to now form a European army to further their power. It is all posturing to insanity.

Brussels will lead the charge to shut down cash as we know it. We are moving into the next stage of massive deflation I have been warning about – not HYPERINFLATION. Government are moving to control everything and you will not be able to buy or sell anything without government approval. This is the Economic Totalitarianism I have warned about is on the horizon.

The next step in the game will be CAPITAL CONTROLS. When the European government realizes that they cannot eliminate cash without the rest of the entire world simultaneously, money will move out even faster from Europe driving the dollar to excessive highs. They will most likely follow the same script as they did in Cyprus and impose currency controls to prevent money from fleeing.

The only way out of this mess will be to change the thinking process. This is the real fight. As I have said many times before that the HYPERINFLATIONISTS are dead wrong and we will PRAY FOR INFLATION before this comes to an end. We are in the meltdown mode of Western Civilization all because of debt and lawyers controlling government who think they can be dictators by just writing laws.

If you understand the nature of the beast we are fighting, then you will NOT be surprised and learn from history even though we are compelled to watch others repeat it.

Saudia Arabia Acknowledges End of Petrodollar

                
Posted on May 23, 2015 by Martin Armstrong  

  

Saudi Arabia has announced the end of the petroleum is upon the world by 2032 – the peak in the ECM. They now announced plans to invest by 2032 a total of $109 billion in the solar industry and become an exporter of electricity.

The Collapse of Socialism –Big Bang

Posted on May 18, 2015 by Martin Armstrong

What is coming to a real crash and burn is the entire idea of Marxism. China and Russia experienced that collapse in 1989.95 with that turn in the Economic Confidence Model. The events began with the crackdown that initiated on June 3–4, 1989 which became known as the Tiananmen Square Massacre.  As military troops with assault rifles and tanks inflicted casualties on unarmed civilians trying to block the military’s advance towards Tiananmen Square in the heart of Beijing, which student and other demonstrators had occupied for seven weeks, the fall of Communism began.

The Fall of the Berlin Wall took place on November 9th, 1989 just 128 days later. This was about the same time difference between the birth of the Roman Republic overthrowing its king in 509BC and Athens overthrowing their tyrants in 508BC giving birth to democracy. The timing remains the same for it does not matter if news travels in 1 hours or one week. It is the amount of time it takes to spread among the population that counts.

You will notice that the collapse of Communism took place all by itself with the peak of the first 8.6 year wave from the birth of this Private Wave that began in 1985.65. This current wave of 2015.75 is 25.8 years from the 1989.95 event. This is the wave that should now begin the collapse of Socialism, which I have dubbed “Big Bang”. This should culminate in a major political reform 31.4 years from 1989.95 and that will be right after the conclusion of this wave in 2020 –  2021.35.

This is also the most dangerous part of this political transformation process historically for government will not go quietly into the light. They will rage against the fade of the light and their power.  Policy makers have promised everything, yet funded nothing. It has been one scam after the next. They have used economic growth as the pretend growth that would lead to boosting living standards. Yet it has been constant rise in taxation to fill their pockets that has reduced the living standards for the Middle Class.

It was ironically Bill Clinton who took office on January 20th, 1993 going into the Pi turning point. It was Clinton who gave everything to the banks on a silver platter repealing Glass-Steagall and announcing he wanted every American to own a home. Behind the Curtain, he lined his pockets and set the banks free to create the ultimate nightmare that was the straw that broke the back of our economy in 2007.15 – structured mortgaged backed security market. That has been the peak in the Velocity of money from which the meltdown is unfolding since the first bailout took place of Long-Term Capital Management in 1998.

I wrote the op-ed for the Wall Street Journal on the Clinton pretend balance budget gimmick. That was accomplished by shortening the debt funding from long-term to short saving heaps of money because long-term rates were substantially higher than short-term. I find it absolutely ironic that here again we Hillary Clinton running against to the banks to make her the chosen one. She would certainly put the nail in the coffin of freedom as we know it and restore the Oligarchy that destroyed Rome and has prevented Russia from rising as did China.

The politicians always constantly blame the rich and claim that economic inequality among individuals is evil, yet they are the first to enrich themselves. There is economic inequality among nations that is directly linked to culture, education, and what they even want out of life. Russia faied to rise as did China for it did not invest in its economy, it simply relied upon its resources to bring in cash. The wealth of a nation is based upon its people – not its raw resources of commodities.

In Australia, they felt sorry for Aborigines who were sleeping outside and constructed public housing. But to them, they went in, took what they wanted, and returned to the riverbeds. From their perspective, living inside an apartment is like prison when you have the fresh air and the sky night. Yet we tend to judge others always by our own standards rather than looking at their ideas and goals.

Policy makers in governments have used debt and monetary tools to manipulate economic activity without success. This has resulted in excessive borrowing and imbalances in global trade and capital. Most governments have excessive national debts and that portion of debt increased by accumulative interest expenditure has hit about 70% in many nations.

The hyperinflationists have been dead wrong. They cannot grasp that government is not that stupid and instead are rather evil. The other side of this nightmare is the full authoritarian world they envision. Legislation like FATCA is shrinking the world economy at an alarming rate confirmed by the collapse in the VELOCITY of money which is in melt-down mode. The G20 nations are now all sharing info in search of money that can confiscate and you have local police just robbing the people – the police are no longer there to protect the people but are revenue agents with guns and wheels.

The frightening rumors coming from behind the curtain are pointing toward a real dark age of constructive communism. You will technically still own your house, but eliminating banks and taking all accounts into the management of government is their solution and the bankers are now willing to fund Hillary to try to stop that trend. The politicians know the Euro has undermined the banking system in Europe, but to actually correct the problem disturbs their power. Their solution is to maintain the Euro by sheer force.

Social programs will be reduced sharply. They assume they will be able to fund them by controlling all accounts and eliminating paper money. This is the collapse in socialism I have been warning about. They are arming the police as effectively military weapons to ensure the people do not revolt against their power. Everything they envisioned as the social fabric is coming undone because their power and position comes first.

Governments played a part, too, allowing the buildup of social entitlements to win or maintain office. Private companies also encouraged the growth of employee benefits to avoid immediate pressure on wages as well as boost current earnings and share prices. All of this is coming to a head. Europe and America depend on government whereas in former Soviet regions people do not trust government and have learned to reply upon family.

This time the Sovereign Debt Crisis is different. In 1931 when government defaulted, they wiped out the rich and bankers. This time, pension funds and insurance companies will be undermined and that will wipe out the future for many. Those in the West will have to learn the same lessons as the people who lived under communism. It’s just our turn up to bat.

As long as the share markets DO NOT make highs with the ECM, then it still appears we can have that Phase Transition into 2017.

Yields Are Collapsing on Short-End

Posted on May 13, 2015 by Martin Armstrong

           

The amount of cash rushing around on the short-end is stunning. Yields are collapsing into negative territory and this is the same flight to quality we began to see at the peak in the crisis back in 2009. The big money is selling the 10 year or greater paper and everyone is rushing into the short-term. There is not enough paper around to satisfy the demands. Capital is unwilling to hold long-term even the 10 year maturities of governments including Germany. This is illustrating the crisis that is unfolding and there is a collapse in liquidity.


As long as the share markets DO NOT make highs with the ECM, then it still appears we can have that Phase Transition into 2017. It appears we are headed into that false move that requires the share markets to decline which then send cash running into government debt. What is unfolding right now is the severe decline in confidence in government is causing the big capital to sell the long-end and move to the very short-end. So we should continue to see this trend and the rates should continue to move negative in that paper.





Since we elected two Weekly Bearish Reversals at 15620 and 15630, the correction was confirmed. However, the next reversal was at 10522 and a Monthly Bearish lies at 15065. This is the critical area to watch for a weekly closing below this level will warn that the highs are clearly in place and we will see long-term rate start their rise. Smart capital sees the crisis. Look for the development here going into the last week of May. We should get a bounce thereafter, but government debt will decline after 2015.75 on a worldwide scale.
The share markets hopefully create the false move and that should send more capital rushing into government paper. There is not enough short-term paper around so we should then see capital forced to start moving up the maturity duration just to park money as share markets correct. Keep an eye on the Global Market Watch. That should help to pick the highs and lows specifically in different instruments.

Euro- first 115, then maybe 120 at best

The Euro & the Press

Posted on May 13, 2015 by Martin Armstrong

           

It is typical how much of the European press is saying the Euro decline is over and a Greece default will not harm Europe. This seems to be the standard propaganda from government that comes out with every serious change in trend be it Japan in 1990 to the US 1929 Bubble where it was also immediately pronounced the fundamentals were all sound.

We warned that the first area of resistance was at the 115 level on the weekly models and that we did not expect a break of the 80 cent level just yet – that was more after 2015.75 than before. Yet we need a daily closing above 11360 to stabilize the Euro. A daily closing back BELOW the 11120 level will warn that a retest of the lows will follow.

The decline is still in motion. This is a reaction rally and the very best we can hope for is a retest of the 120 level. However, we must break through the top of the channel on this chart to make that happen. Otherwise, the 115 level may be the maximum on the upside. That channel stands at the 11427 level at this time and the 109 level under the market. Break the channel on the downside on a closing basis and the lows will be retested. The main support still lies at the 103 zone.

When Genius Failed

Why do Most Computer Models Fail?

Posted on May 11, 2015 by Martin Armstrong

Computer Models typically fail for the same reason why human forecasting from a gut personal perspective becomes a joke. In both cases, if there is no experience with the past, neither can possibly forecast the future. Such models have failed because they lack the historical database on a global scale. How is it possible to create a model that only goes back to 1971 where free data is available? What will happen is catastrophic. It will work for the period that everything is normal, but it cannot predict the major events like the Great Depression and Sovereign Debt Defaults for it has never seen such events in the data.

The models that resulted in the collapse of Russian bond debacle in the Long Term Capital Management in 1998 were created by brilliant men who had no trading experience. The book,When Genius Failed, went into the arrogance of the firm and the era. Long-Term’s partners relied upon what they though was the magic formula that could predict markets. Their arrogance in mathematical certainties created a new age culture of Wall Street that set the stage for its collapse, yet it has still not quite gone away. This arrogance remains and it has contributed to both the rise and the fall of Wall Street in search of the Perfect Trade.

When Long Term Capital Management (LTCM) was founded in 1993, it was touted as the most impressive hedge fund in history. Its mathematical models were blessed even by the Nobel Prize much like Obama was handed the Nobel Peace Prize simply for being the first black president. Yet in just 4.3 years, the wave of the ECM 1994.25 to 1998.55 had dazzled Wall Street as a $100 billion moneymaking juggernaut, I was personally told to join the “club” for with these mathematical models and Nobel Prize winning players combined with rigging the game and paying bribes to politicians, it was the Perfect Trade in Russia. I told them our model said it would collapse where their’s said the party would never end.

Long-Term Capital Management suddenly suffered catastrophic losses that jeopardized not only the biggest banks on Wall Street but the stability of the financial system itself. This resulted in the Federal Reserve, without any authority, bailing out a hedge fund for they would have taken down the high-flying banks who all bet on this Perfect Trade.

The dramatic story of Long-Term Capital Management’s fall illustrated that the Federal Reserve could have saved both Bear Stearns and Lehman Brothers but this was Wall Street’s payback. Bear refused to contribute money to bailout LTCM because they were not involved. Goldman Sachs’ Hank Paulson let them go because I believe they were competitors to Goldman and he wanted to steal their clients. There was plenty of precedent to bailout LTCM which was not a bank, so Paulson’s excuse was nonsense since the next day he rushed to bailout AIG that owed Goldman a fortune. Bush, in my opinion, was a fool manipulated by the people around him with their own personal agendas.

 So the Black & Scholes Models failed for it lacked the historical depth to back-test the model under all conditions. This is why we spent so much money on creating a database all the way back. Even the model used for the CDOs, failed. David X. Li, the Canadian math wiz was blamed for that failure.

In truth, many people have tried to copy what we have accomplished tying together the fact we have used physics and then assume they can bring in math guys to create something they have no trading experience in doing. That has proven to be a wild ride to say the very least. It is the database that makes forecasting possible.

To put together this chart would cost over $100 million today. It was a major research project that was necessary to predict the future. The burning question was HOW DO EMPIRES FALL? Was it like a 747 plane coming down gradually for a landing, or was it a collapse out of the blue? If you do not spend this money, you cannot possibly predict how society will perform.

The 8.6 year frequency has been back-tested into ancient times. The discovery has been that amazingly it is part of everything that spans the centuries. This was like discovering the earth was round and not flat. Of course people will refuse to believe there is a business cycle and that cannot imagine that they will be compelled to act. What they fail to grasp is that the business cycle has always existed for it is partly influenced by nature, not just mankind.

There were people who refused to believe the earth was round for to them you would surely fall off if you were standing upside down. That was Issac Newton who had to discover gravity to explain that one. Today, there are people who cannot believe that something in the business cycle would be so precise. To comprehend what is going on and why, may take yet another discovery along the lines of gravity.

The database is the key. Without spending the money, you cannot even form the correct question. Hence, this is not been my theory of how the world should work, it has been my discovery of how it works and what remains not is to figure out why.