We have been able to identify the existence of constant Benchmarks in everything,

Benchmarks to False Moves – The Constant Cycle of Change

Posted Mar 31, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; You said China will become the financial capital of the world after 2032. That means the US must decline. At the same time, you have been consistent in forecasting a bull market in the U.S. share market when everyone else keeps calling for a crash. Are the two connected in some way?

Thank you

HS

ANSWER: Yes, these two events are interlocked. All markets function very distinctly. They move like a pendulum. The famous one in the United Nations building with the classic physics experiment, Foucault’s pendulum, is propelled by the rotation of the earth itself. While it had long been known that the Earth rotates, the introduction of the Foucault pendulum back in 1851 was the first visual proof of the rotation of the Earth in an extraordinary easy-to-see experiment. The pendulum remains in a constant oscillation relative to the universe. As the earth rotates, we can see that it does so around the constant path of the pendulum swing.

This applies to market behavior as well. There is a constant oscillation to everything we call our Benchmarks. They remain constant within the universe and everything else rotates around them. The energy that maintains the cycle is the constant oscillation between two extremes. The further it swings in one direction, the greater the energy moves in the opposite direction.

This is the very essence of how everything moves. This is the creation of energy to keep things going from the instant of creation also known as big bang. Personally, I do not believe in just a simple big bang. I believe after big bang; the expansion will stop and then reverse and move back toward the point of origin. Then it will explode outward once again. I do not believe it was a one-time event since energy can neither be created nor destroyed – only transformed between states.

Now apply this to markets. The real energy within a market is always to trap the majority, for then they lose money and it forces them to cover their position. If 90% of the people are long, then any news can set off the collapse. If you scare the majority, there will be no bid when you try to sell, which results in a flash crash. Likewise, this current rally in the Dow from 2009 has been the most bearish in history. The majority of analysts still keep calling for an inevitable crash. Retail participation still remains near historic lows. You cannot get a crash of major consequence as long as the bulk of the people are not invested in the market. Here you see how the market ALWAYS makes a false move just before it makes the real move in the direction of the underlying trend. At each correction, the emotions run high and people ALWAYS expect whatever trend is in motion will remain in motion. Hence, shorts build up and then they are compelled to cover and that gets the rally moving.

Markets are fractal. So whatever you see on only level of time, must exist on all levels of time or else it is not real. The Dow made a Yearly FALSE MOVE on a number of occasions. For example, the high of 1916 dropped from 8500 to 6590 and established the low in 1917. It then swung to the upside, reached new highs at 11960 in 1919, and then on the panic back down.

The Dow made its intraday high in 1889, which was followed by a one year panic into 1890. It then swung back to the highest yearly closing in 1892 with the famous Panic of 1893 immediately thereafter.

A similar pattern unfolded with a high in 1872, a panic penetrating the previous year’s low in 1873, and then a dramatic swing to new high the next year in 1874.

These are just a few examples.

The goldbugs simply hate me even saying that gold can still move below $1,000. They approach everything only in a linear concept – it must only move up and never down. This is how they lose money consistently. The extreme ones are married to this idea that gold will rise in an apocalyptic fashion when everything else turns to dust. There is always a FALSE move before the true direction. A move for gold below $1,000 will create the energy needed to send it soaring past the $2300 level which is the 1980 high adjusted for inflation. This is what our Reversal System is all about. It is to define that point of no return where we can differentiate between a false move and a real breakout.

Now, because everything is fractal, and we have been able to identify the existence of constant Benchmarks in everything, it becomes possible to observe the rotation of capital around the world which is behind the rise and fall of every civilization since the dawn of the human race. In 1990, China was just 5% of world GDP. Now in 2015 it has risen to 15%. The United States is the world’s largest national economy in nominal terms representing 24.5% of nominal global GDP.

We first must send the share markets up dramatically. This will be the FALSE MOVE that makes everyone see that the USA is the only game in town. That will be the extreme point, reaching the maximum swing and then its own weight will cause it to move back in the opposite direction. Just as the British Empire rapidly collapsed following World War I handing that title of Financial Capital of the World to the USA, we will see the same take place as that title moves to China. One of the critical factors that will kill the US economy will be taxes and overregulation – both the socialist’s dreams come true. What broke the back of China and Russia in 1989, was this same failure of Marxist philosophies that call for total central planning by government. It is merely the West’s turn to now collapse because of the same philosophy of Karl Marx.

Only a fool believes in the fairy-tales of happily ever after. There is a cycle to everything. The Pension Crisis Report went into detail. Men mature slower than women, so historically the man was always much older than his wife. Hollywood sold lust as love at first sight and as the age difference collapsed, divorce reached cyclical highs. As they say, a girl becomes a woman at 23 but a boy does not become a man until 40. Women married boys but expected them to be men. Today, much of the youth reject marriage and having children. The demographics and changing life styles are undermining the entire idea of pension systems. This is a crash that will also propel the shift. Interestingly enough, in the former communist regions, people never trusted government so they expected nothing in return by tyranny. In the West, society still believes in government and the dream that they will be there. When government falls, Western society will not be as self-sufficient as they were in China. Socialism replaced the family structure in the West so children did not save to take care of their parents – that was government’s job. We face a lot of real social problems moving into 2032. That’s what our WEC conferences are all about.

Artificially set the Ruble’s value too high against the dollar reflecting past glories,

The Financial Crisis 1992-1993

Posted Mar 26, 2017 by Martin Armstrong

QUESTION: Marty, it is well known here in Britain that you advised Thatcher of course, but it was John Major you advised and even wrote what he said during the pound crisis during the Soros attack. Would you ever like to comment on that in public about what really happened during that crisis. The press will never report anything you say. There are those of us who would like to hear from the source.

Thank you for what you do.

PJ

ANSWER: For those who do not know, Sir John Major was the Prime Minister of Britain 1990-1997. One of the biggest BS stories is how they blame or credit such events to one person. Each of these market “manipulations” or attacks, are typically characterized with one member of “the Club” taking the front position. In this case it was George Soros. He was given the personal face of that event that broke the pound. It was by no means just Soros. He did not get that trade correct out of thin air. Everyone in the trading community saw it coming. It was similar to the Greek crisis in 2010. Once one member is in trouble, traders look around ans see who is next.

The 1992/1993 collapse of the European Exchange Rate Mechanism (ERM) was a system introduced by the European Economic Community on March 13th, 1979, to which Thatcher was against. It was part of the European Monetary System (EMS), intended to reduce exchange rate variability and achieve monetary stability in Europe in the aftermath of the collapse of Bretton Woods in 1971. Only after the Plaza Accord in 1985, did the EMS prepare for Economic and Monetary Union of Europe which gave birth to the introduction of a single currency, the euro, which took place on January 1st, 1999. The collapse of Bretton Woods, the ERM, and the coming Euro all have the same flawed understanding of economics. Government think they can by law or regulation nullify their own failures. All three systems could never survive under the socialistic/military establishment for the politicians do whatever they want to sustain power, not to manage the economy in any meaningful manner.

Clearly, the tension within the ERM began to build up from mid-July 1992, concentrating initially on the Italian lira, then on sterling and then on a variety of other currencies. However, what was also overlooked was the fact that July 1992 was also when the Russian Ruble began trading for the first time. Meanwhile, the Bank of China required foreign visitors to China to conduct transactions with Foreign Exchange Certificates that were issued by the Bank of China between 1979 and 1994. Effectively, this was a two-tier monetary system – domestic v international. Following the ERM Crisis, this two-tier system was abolished, and all transactions now occur in Renminbi. The entire global foreign exchange system was changing. The biggest mistake people make looking at the British pound crisis of 1992, has been to look at it through a myopic perspective of isolation.

The pressure on the Finnish Markka was so strong that it abandoned its peg with the ECU. Italy raised its interest rates, but still the lira weakened repeatedly. The Bundesbank did not cut its interest rates enough fearing inflation and speculation would continue. It was on September 13th, 1992 when the Italian decision to devalue Italian Lira by 7% took place (other currencies revalue of 3.5%: Lira devalues 3.5%). The pressures on lira led traders to look around and saw that the British pound was also overvalued relative to Germany. Hence, sterling became the next target just as did Portugal after Greece in 2010.  It was Black Wednesday, September 16th, 1992, when the British Conservative government of John Major was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it was unable to keep the pound above its agreed lower limit in the ERM. Yes, I was being called during this crisis. The first call from Britain asked me what our model was forecasting. I warned that the pound had to be devalued and that the ERM was collapsing exactly as did Bretton Woods. I was told John Major could not devalue the pound for that was his campaign promise. I thought about the crisis and called back. I wrote down the words to say that he would allow the pound to seek its own level. This was slightly different from a devaluation which would have still been a fixed exchange rate peg. Allowing the pound to float would let the market make the decision, rather than the politicians.

The day after the British crisis ended with effectively withdrawing from ERM, it in turn flipped the pressure back upon Italy. Thus, the following day, the 17th of September 1992, Italy also withdrew from ERM. Once again, attempts to politically fix currencies produced a total and utter failure as was the case with Bretton Woods and of course the more recent Swiss Peg collapse. We will see the same end result with the Euro.

The Deutsche mark was sent to significant highs even against the dollar in September 1992. The foreign exchange markets remained disturbed for the rest of that year, with a renewed outbreak of speculative pressures leading to the abandonment of Sweden’s peg to the ECU, devaluation of both the Portuguese escudo and the Spanish peseta in November 1992 and the abandonment of Norway’s ECU-peg in December 1992. By January 1993, Ireland witnessed economic pressure due to the sterling devaluation by the UK, and this then compelled Ireland to finally devalue by 10%. Germany finally reduced its interest rates in February, March and April of 1993, trying to ease the economic pressure within the currencies that had not yet been realigned. The entire crisis of 1992-1994 was a prelude to the ultimate crisis that would hit the euro for similar reasons and Germany’s fear of inflation that would impose austerity on the rest of Europe. It was Germany’s high interest rates in 1992/1993 that broke the back of the ERM.

Indeed, then France presented a problem for the politicians that made clear of their commitment to the ‘franc fort’ policy, that was keeping the franc at its existing parity. France also wanted lower interest rates to relieve the recession, and it appeared willing to challenge the German economic authorities publicly, who were concerned about inflation, so they kept interest rates high out of austerity. On June 18th, the French money market intervention rate was pushed below the German rates. This was received with skepticism in the markets. Consequently, speculative pressures within the ERM continued to build. This time, those pressures turned against the French franc during July 1993. The Banque de France was forced to raise its interest rate to prevent the franc from falling through its ERM lower band. However, the Bundesbank did not lower its discount rate, and massive sales of the French franc, Belgian franc, Danish krone, Spanish peseta and Portuguese escudo took place in response. Once again, Germany’s obsession with the Hyperinflation of the 1920s dictates their response. Today, we have seen the price of German austerity upon the entire economic condition of Europe. While the ERM broke, today there is a full federalized government in Brussels attempting to maintain austerity and the same philosophies that broke the ERM during the 1992/1993 Crisis.

At this point in time, the ERM was in total crisis within Europe. One would think they learned from Bretton Woods, but politicians are blinded by their self-interest, which always comes before that of the people or country. Massive intervention was necessary to keep these currencies just above their ERM floor. On the 2nd of August 1993, the EC monetary officials and finance ministers finally agreed that the ERM bands should be widened from 2.25% to 15% (except for the Dutch-German one). With the wider bands, the system would be less vulnerable to speculation.

At the core of all of this was German’s complete misunderstanding of the Hyperinflation and their attempt to impose austerity upon all of Europe, which is deflationary and anti-economic growth.

The ERM Crisis of 1992/1993, made George Soros famous, yes, but it awakened international hedge fund traders to the currencies markets. Traders then turned to the peripheral markets – Russia next and then South East Asia, which saw its share market peak in January 1994 and bottom in September 1998 (56 months).

It was on October 11th, 1994, when the ruble tumbled in the Moscow interbank market by over 20% against the U.S. dollar. “Black Tuesday” became the first currency crisis in post-communist Russia also caused by politicians. From July 1992, when the ruble first could be legally exchanged for United States dollars, to October 1995, the rate of exchange between the ruble and the dollar declined from 144 rubles per US$1 to around 5,000 per US$1. It was the float of the Ruble in July 1992 that started the shift in global capital flows and currency markets. Politicians, for pride, artificially set the Ruble’s value too high against the dollar reflecting past glories, which was the exact same mistake of the British entering the ERM. Rapid changes in the nominal rate of the Russian economy reflected the overall macroeconomic instability. After the ERM crisis, traders then turned to emerging markets targeting Russia. This was the Black Tuesday with a 27% collapse in the ruble’s value against the dollar. Eventually, in July 1995, the Russian Central Bank announced its intention to maintain the ruble within a band of 4,300 to 4,900 per US$1 through October 1995. They later extended the period to June 1996. They attempted a “crawling band” exchange rate which they introduced to allow the ruble to depreciate gradually through the end of 1996, This led to a further collapse from 5,000 to 6,100.

After the Russian introduction of the “crawling band”, traders turned their attention to the emerging market in Southeast Asia with more concerted force. This eventually manifested in the 1997 Asian Currency Crisis. Then traders turned back to Russia. I have stated many times how I was invited to the IMF dinner put on by Edmond Safra in Washington. I was being pitched then to join “the Club” and buy into Russia for they had the IMF in their pocket. The IMF would continue to guarantee Russian debt so you could buy debt and earn 5 times the amount of interest otherwise. The IMF would eliminate the risk. I said “No way, my computer warned Russia would collapse.”

Of course, this eventually led to the collapse in 1998, which in turn set in motion the Lehman and Bear Stearns collapse thanks to Long Term Capital Management collapse who lost on the Russian bond market.

It was all set in motion by politicians trying to fix currencies that they cannot fix.

When empire begins to die, the capital flow reverses and then moves back toward the core economy

How Capital Moves – Outward then Inward

Posted Mar 22, 2017 by Martin Armstrong

QUESTION: Hello Martin, In your ‘Why the Crash & Burn is Public not Private’ post of 18 March, you have an image showing World Capital Investment. Is that the sequence money usually follows at this time? And, what exactly is the ‘alignment’ you mention towards the end of the post as well as elsewhere? Best Regards and my condolences on the loss of your friend, Mr. Edelson.

BH

ANSWER: Historically, capital tends to flow first from the financial capital of the world to the outer provinces or state. This was how it functioned in the Roman times as was the case for postwar when US capital flowed outward to rebuild the rest of the world. Then what happens is as an empire begins to die (in this case Western Culture), the capital flow reverses and then moves back toward the core economy which is the financial capital of the world.

Here is a chart of all the bonds listed on the New York Stock Exchange. When the Sovereign Debt Crisis hit in 1931, government simply defaulted. The bonds were then delisted never to come back again.

What transpires at that moment when government moves into a Crash & Burn, is that all tangible assets rise together, albeit at different rates of advance. This is what I call the Great Alignment. Therefore, we will see gold rise WITH the stock market – not counter-trend. Likewise, real estate survives provided you do not enter into a Dark Age when not even gold survives – only food.

If we look at the German Hyperinflation caused by the Communist Revolution in Germany in 1918 inviting the Communists of Russia to take Germany and the formation of the Weimar Republic, all of this political-economic chaos ended with a new currency being issued following the fall of the Weimar Republic. That currency was not backed by gold, but instead real estate.

Serious economic decline for mainstream media - 2023

It’s Confirmed – Trump was Spied On During Transition

Posted Mar 22, 2017 by Martin Armstrong

This is a press conference in its entirety from the committee investigating everything. Yes, there was no “wiretap” of Trump Tower. As I reported previously, that is old-school. So while the New York Times and the Washington Post are desperate to cover everything up and focus only on that single word to claim Trump has no proof,  behind the curtain everyone knows that Trump was spied on because that’s just what is going on. The same as the NSA has all the emails Hillary erased and every phone call. Nobody in Congress dared to subpoena the NSA for that info because it would set a precedent that would one day come back and bite them.

What is going on is the committee “invited” people with information within government to come clean and present info directly to the committee. To the shock of everyone, that is happening. So people do not want to go down with the ship and they will give up others who have been leaking info to the New York Times and the Washington Post, which have been the two mouthpieces for the Democrats and the anti-Trump movement. This will get much more interesting as we move forward.

Keep in mind that more confidence in government is undermined, including the mainstream media, the more likely we will see the bonds collapse of all governments and private sectors rise. Politics is the driving force in this cycle. The New York Times was founded September 18th, 1851. Cyclically, the New York Time will be in trouble economically starting in 2023. Its abandonment of reporting the news and trying to create news, as is the Washington Post and CNN, ABC and NBC, will result in a serious economic decline for mainstream media. CNN may be entering a serious crisis reflection point. It was founded in 1980 and 2017/2018 is a serious turning point for CNN. Best to avoid shares in these entities going forward.

Socialism is the code word for total government control and the diminishing world of human rights

Posted Mar 21, 2017 by Martin Armstrong

What’s Collapsing? Socialism or capitalism

QUESTION: Many people argue it is capitalism which is collapsing not socialism. How would your respond?

ANSWER: Those people who say this is a failure of capitalism and not socialism simply are trying to come up with an excuse as to why their dreams are not coming true. Democrats champion the poor and middle class but run to the rich for money. Why would bankers and hedge funds as well as Hollywood support Democrats if they are really hated so much? The answer is rather simple. They can bribe them for loopholes and favors.

The monetary and banking problems in the world today arise NOT so much from the failure of specific economic policies, but from deep-seated corruption and problems in institutional structures that have been created in response to socialism, which includes excessive regulation. Individuals clearly make mistakes in business but legislatures make bad laws and career politicians become detached from society, which is no different than any monarch. However, the institutions from which decisions and laws emanate are the core that determines the effectiveness of social operations and the value of social decisions. The more they create laws to solve an issue, they create other problems in the process.

Unless we change the immediate institutional structure of how government is designed, trying to impose centralized planning, we are not likely to get stable solutions to today’s economic-social problems. We exist between brief periods of economic stability and total government ineptitude resulting in erratic inflation and serious banking instability. The history of modern monetary and banking arrangements and government’s complete failure to manage society begs for meaningful reform. However, the likelihood of such reform is zero without the Crash & Burn, for he who holds the power in his hand will never let it go willingly.

The rhetoric against central banks clouds the issue. Government wants to spend other people’s money all the time, be they left or right. They only differance is on what to spend it on. However, they look to central banks to control the economy when they can only impact interest rates while money supply expands with velocity and contract when people lack confidence. The central bank has no possible power over fiscal spending and until the people stop complaining about central bankers and look at the whole problem, politicians will never be blamed for anything.

The impact of political interference on the workings of monetary and financial institutions is great under socialism implemented by people who have no experience whatsoever. Not surprisingly, many of our modern problems arise because politically generated structures are inappropriate to the real world. The hunt for money by government has cost billions in the private sector trying to cope with regulations to the point that the back offices in banks and risk management outnumber the the front offices actually doing business. This is only slowing down the economy and raising costs to the consumer who in turn only sees his living standard decline year after year.

Socialism is the code word for total government control and the diminishing world of human rights. People look at labels but are blind to the reality of what is being labeled. Is LIFE INSURANCE the same as FIRE INSURANCE that covers you in case of a fire? So LIFE INSURANCE is covering you in case you live forever or is it really death insurance? The nature of anything can be distorted by its label

Without mortgages available, real estate falls further than other tangible assets because it has been LEVERAGED

Are Cycles Universal or Regional?

Posted Mar 20, 2017 by Martin Armstrong

QUESTION:  I have a question regarding cycles. You provide some very detailed, historic references showing why certain events are occurring now (again). Is there a disposition for something that occurred in the past to be destined re-occur for a particular region/country (i.e. Greeks abandoning property due to excessive taxation) because it happened once and now the propensity to repeat that causal action again is “in their DNA”. Is that something we as Americans do not yet possess because we have not been around long enough to experience a “fall of Rome” type event?

SM

ANSWER: Cycles are based upon two element – (1) nature and (2) human nature. Some regions will be prone to natural disasters while others are not. Ironically, many of the best ports where cities grew such as Tokyo and San Francisco just as examples, were great harbors because of earthquakes. The landscape in California is strikingly beautiful compared ot the flat plain in Oklahoma, again because of earthquakes. The rocks that appear in Central Park in New York City are there because an earthquake fault runs through New York City making the harbor what it was. Hence, there are cycles that impact only on a regional basis due to nature.

With regard to Greeks walking away from inheritance because they cannot pay the tax, this is inherent to all societies when government goes too far. They imposed harsh laws in Vancouver against foreign real estate buyers and the market crashed. Because it was a local law, they moved to Victoria and Toronto. In Australia, they are seizing properties own by foreigners and selling them off. All of these types of interventions are reactions to events set in motion externally.

That said, this is the US cycle for real estate as a national whole. I just bought a house in Florida at about 50% of its 2007 high value. Trophy spots for the high end where people are just parking money we warned would make new highs going into 2015.75 – but that is not the bulk of the market. Why is the US market (minus trophies) down hard when that is not the case in other countries? The difference is the regional issue. In the USA, many people have 30 year mortgages. In Canada, the best you can get is a 10-year fixed mortgage. In Germany, you can get up to a 15-year fixed mortgage.

We must understand that property values are LEVERAGED, so if the money for fixed rate loans dries up because of interest rate hikes and political uncertainty, then real estate prices MUST fall. This is all because of the leverage that was deliberately injected into the real estate market during the Great Depression for property fell  in value so far, only cash buyers could buy anything. Farm land fell in value to below what it was sold for by the government more than 80 years before.

Real estate is different from stocks and gold. Yes it is a place to park money. However, be careful because without mortgages available, it falls further than other tangible assets because it has been LEVERAGED! Moreover, it is a fixed asset meaning you cannot leave with it. Therefore, people are forced to simply walk away when (1) the tax burden is too high and (2) there is war and the region is being invaded