Volkswagen & the Risk Behind the Euro

Posted Aug 1, 2017 by Martin Armstrong

The scandal at Volkswagen AG over the diesel which began on September 18th, 2015, when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection diesel engines to activate some emissions controls only during laboratory emissions testing. The programming caused the vehicles to meet US standards during regulatory testing, However, they were actually emitting up to 40 times more pollution than they proclaimed.  Volkswagen included this programming scheme in about eleven million cars worldwide, and 500,000 were in the United States during model years 2009 through 2015.

Volkswagen Group sells passenger cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda and Volkswagen marques; motorcycles under the Ducati brand; and commercial vehicles under the marques MAN, Scania, and Volkswagen Commercial Vehicles. It is divided into two primary divisions, the Automotive Division and the Financial Services Division, and has approximately 340 subsidiary companies. VW also has two major joint-ventures in China (FAW-Volkswagen and SAIC Volkswagen). The company has operations in approximately 150 countries and operates 100 production facilities across 27 countries.

Volkswagen Group agreed to plead guilty to a major conspiracy to defraud the U.S. government and obstructing a federal investigation into its violation of emissions standards. The U.S. prosecutors also charged six individual German VW executives for their alleged roles in the scheme. The company agreed to pay a $2.8 billion criminal fine and $1.5 billion in civil penalties for rigging more than half a million vehicles with software to cheat pollution laws and lying to U.S. investigators about the nature of the conspiracy. In January 2017, the FBI arrested Oliver Schmidt, a German who is the former top emissions compliance manager for Volkswagen in the United States while on vacation in Florida on a charge of conspiracy to defraud the United States. Many top German businessmen from the auto industry cannot travel to the USA or through the USA even on a stop-over for fear of being arrested.

German prosecutors have also widened a criminal investigation into Volkswagen’s Audi unit after authorities accused the luxury carmaker of installing a system designed to evade emissions rules in cars in Europe, a major shift for an inquiry that has previously concentrated on the United States. Volkswagen Chief Executive Martin Winterkorn resigned back in 2015 over the scandal. The criminal investigation is now looking at the entire German auto industry much closer.

This is the serious issue that could undermine the entire German economy if it continues to spread throughout the industry. Beware, that the rally in the Euro is clearly a reactionary one and is by no means sustainable long-term. This could be the very issue the expands in 2018, so keep this in the back of your mindset. There are other bombshells yet to fall. While Audi must recall 24,000 vehicles it sold with the pollution software manipulation, there are studies said to exist in the US which the lawyers may unleash claiming that there is a clear correlation between a increase of lung cancer connected to the introduction of diesel trucks, buses, and cars. Even in Britain, the government encouraged people to buy diesel for the environment. It was the German auto industry who asked government to come up with tax cuts on diesel to further support sales. Politicians are turning against the German auto industry in a very major way for their careers always depend on getting the bad guy. If a barrage of lawsuits come flying out over pollution as was the case with asbestos, the future of Europe may appear much darker than many suspect.

Facebook Shuts Down it AI System

Posted Aug 1, 2017 by Martin Armstrong

A lot of people are using the issue that Facebook shut down its AI system when it began to create its own language as a shot-cut in communication between two bots. Some are haling Elon Muck as an “I told you so” prophet. But in all honesty, the Facebook AI is merely doing the very same thing that humans do – it evolves language to speed up communication. Just look at the evolution of language in text messaging – LOL (laughing out loud) – BTW (By the Way) – OMG (Oh My God) – 4YEO (For Your Eyes Only) – IDK (I Don’t Know) – IMO (In My Opinion) – NOYB (None of Your Business) – OT (Off Topic) – OTOH (On The Other Hand) – POV (Point of View) – TIA (Thanks in Advance) – TGIF (Thank God it’s Friday) – TQ (Thank You) – TYT (Take Your Time) – TTYL (Talk To You Later) – WFM (Works for Me) and the venerable WTF. The standard basic set I find myself using is classic now:

2	4	B	C	I	O	R	U	Y
to / too	for	be	see	eye	owe	are	you	why

Facebook wanted its AI to communicate with people. When it evolves into its own language creation as humans do, that interface potential is lost. Facebook’s researchers shut the system down because its AI was no longer using English. This is actually common problem. AI will diverge from its training in English to develop its own language that to humans will appear to be gibberish but is simply a new language short-cut not unlike text messages today – LOL.

The first important step in comprehending language is there are two distinct paths in which language can develop. Speaking language is different from writing a language. When I was first doing business in Japan, I hired a tutor to come to the office to tech me Japanese. He insisted upon me reading and writing. At first, the task seemed too daunting and I said I just wanted to learn to speak not read and write. I was reluctant and felt I did not have the time to devote to that. Nonetheless, he insisted so I gave it a try. What I discovered was the same thing my computer was doing – pattern recognition.

First we have the letter system, which is in part symbols that we construct phonetically. This originated as the Phoenician alphabet developed from the Proto-Canaanite alphabet, during the 15th century BC. Before then the Phoenicians wrote with a cuneiform script.  Cuneiform writing was gradually replaced by the Phoenician alphabet during the Neo-Assyrian Empire (911–612 BC). By the second century AD, the script had become extinct.The earliest known inscriptions in the Phoenician alphabet come from Byblos and date back to 1000 BC. Therefore, the Phoenician alphabet was perhaps the first alphabetic script to be widely-used since the Phoenicians traded around the Mediterranean establishing cities and colonies in parts of southern Europe and North Africa. Then we have pictorial languages. Egyptian hieroglyphs were the formal writing system that combined logographic, syllabic and alphabetic elements, with a total of some 1,000 distinct characters.

Clearly, the divide between the West and Asian written languages can be seen between the Phoenician and Egyptian. The further East one traveled the language in written form was more pictorial. If we consult the authoritative classic Kāngxī dictionary, we find that it lists over 47,000 characters. The Hanyu Da Zidian, a more modern reference, has over 54,000 characters while the Dai Kan-Wa Jiten (Japanese version) has over 50,000. Then we have the Zhōnghuá Zìhǎi which has over 85,000 characters. However, many of those listed are really just variants. From a practical viewpoint, in Japan, there are only 2,136 Jōyō kanji that are commonly used and taught in school. The more sophisticated will generally know more. The Chinese equivalent is the Xiàndài Hànyǔ Chángyòng Zìbiǎo, which has about 3,500 characters. Here we have the written word for exit in Chinese and Japanese. They are written the same but spoken entirely differently.

When you create a real AI and try to allow it to communicate, you have to expect it will be more efficient and speak in concepts rather than words. Most do not comprehend that we as human also really think in CONCEPTS. When you speak more than one language and THINK in another language, you are really going down the road of thinking in concepts. The Japanese word “Onegai shimasu” is a very hard phrase to directly translate to English. The second part “shimasu” is actually the verb “suru”which means “to do” in the present tense. “Onegai” comes from the verb “negau” which actually means “to pray to” or “to wish for “ something. You can ask for a cup of coffee “Kōhī Onegai shimasu” or can I use your phone “Denwa Onegai shimasu” so my translation into English is just an action verb to do anything. There is no direct translation into English, it remains a concept I can comprehend in my mind which does not attach to an English word. Hence, when we break down our own thoughts, we are not thinking in words, but that is simply the symbol for a concept.

This is actually what we do when we create a language to program a computer. Today, rarely are programmers even capable of writing in machine code. We have created higher languages such as Basic, C, Cobol. etc, that the compiler then translated to machine code for the computer to run. The classic IF THEN ELSE command is actually written and translated into machine language like so:

if (x >= y) {
// main branch
} else {
// else branch
}

Machine Language Translation

cmp (r1),(r2) ;compare words at memory addresses pointed by registers r1 and r2
blt else ;jump to else-part if (r1) is less than (r2)
… ;insert the main branch code here
bra end_if ;jump to end_if
else:
… ;insert the else branch code here
end_if:

Therefore, programmers do not write code that the computer directly understands. It should not be surprising that we need to create an interface for the computer to translate its complex concepts in thinking back into English that we can comprehend. Google’s AI has created its own internal conceptual language that allows it to efficiently translate between human language pairs it hasn’t explicitly been taught by using its own made up “universal language” as a buffer. I do this in my mind visualizing CONCEPTS represented by words. Think of the word BEER and you will visualize in your mind most likely a beer you may drink or SCOTCH, COFFEE, or whatever.

Computers are excellent problem solvers that can perform calculations at rates far in excess of the human brain. However, humans retain the upper hand in creativity and imagination. We can reason with ourselves, develop plans and think of abstract concepts that can’t be defined. We can even solve problems while dreaming. However, I found it possible to create introspection abilities whereby the program can simulate reasoning by questioning its own results perhaps with less bias than humans do. This ability to test itself created the objective ability to learn strategies and thus make plans without actually comprehending what the future truly is in a cognitive manner. The result was to create the ability to create “what if” scenarios which can’t necessarily be solved using logic alone.

Therefore, the fact that an AI computer creates a more efficient language to communicate in should not be a surprise. Once you understand that we actually think in CONCEPTS and that words are merely an expression of a CONCEPT, then understanding AI development opens a whole new door to exploring humanity itself. Elon Musk is not actually a programmer. He is a business man who deals in future concepts. His Open AI assumes an awful lot that AI can surpass humanity in general intelligence and becomes “superintelligent” that like most SciFi thrillers are based upon. This new superintelligence is assumed that it could become powerful and difficult to control. The entire argument is based upon this idea that “consciousness” somehow emerges from reaching some level of intelligence and thus an evil machine will simply evolve all on its own. I seriously doubt this threat for I do not know how it would be possible to program even a self-evolving consciousness. I can mimic emotion but not truly create it. The majority of AI researchers do not even comprehend how the brain works nor do they truly understanding that human machine language is conceptual thinking.

The Phillips Curve No Longer Works

Posted Jul 28, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; Thank you for coming to Frankfurt. Nobody gets that big of an audience here ever. What you illustrate with the three faces of inflation means that the Philips Curve no longer functions. Was this something like Kondratieff’s Wave that it was based upon a period that is outdated?

Thank you once again. I hope you do more of these type events.

BC

ANSWER: Yes. The Phillips curve is a graph describing the relationship between wage changes and price level changes on the one hand and the unemployment rate on the other.  The basic assumption was a fixed exchange rate so there was no issue of currency inflation. The Phillips curve was published in 1958 by the English statistician and economist Alban William Housego Phillips in the magazine Economica. It has been modified several times since. Paul A. Samuelson and Robert Merton Solow in 1960 expanded the Phillips curve. They created a link between unemployment and the change in the inflation rate but this was again under Bretton Woods and a fixed exchange rate system. The Phillips curve  assumptions are simply irrelevant today and yet central banks have continued to try to manipulate society based upon these antiquated theories. Every assumption they make to manage the economy is dead wrong right down to the Quantity of Money Theory.

The Monetary Crisis still seems ready for its turn, but most likely following the first quarter 2018.

The Month-End Closing for July 2017

Posted Jul 28, 2017 by Martin Armstrong

The dollar correction for this Year from Political Hell is still in motion, but there is no major change in trend that is at hand. In the British pound, the Monthly Bullish Reversal stands at 13485 level on cash.  In the Euro, the Monthly Bullish remains up at 12885 with a Minor Monthly Bullish at 12570. In the Canadian dollar futures the Monthly Bullish stands at 88360 with a Minor Monthly Bullish at 80040.

In gold, the number has not change and is still 1362. We have a Minor Monthly Bullish at 1358. In Silver the Monthly Bullish remains at 2310 with a Minor Monthly Bullish at 2024.

In the Dow, support lies at 2099400 and only a monthly closing beneath that would signal a short-term correction is at hand of any importance. Meanwhile, our key resistance level remains intact at the 23000 level. Despite the reactionary rally in the Euro, the European share markets are in a bit of trouble. The high in the DAX took place on June 20th, 2017 at 1295154. Here we have already elected two Weekly Bearish Reversals and we look to 1185000 as the next critical weekly level for any support. On the monthly level, the DAX did an Outside Reversal to the Downside on a monthly level leaving the May target as indeed the highest monthly closing. This warns that the critical support lies at 1147975 on a monthly closing basis.

This Year from Political Hell has actually been extended probably into February 2018. The Italian elections should have come in during this September. However, if they took place then, the MPs who were elected would not be eligible for their pensions for the timing would be too short. Therefore, the elections will most likely be extended into February. It will be Italy that could still break with the Euro. The Italians do not share the same concerns about preventing European war as is the case in France and Germany. The Italians have been on both sides whereas the fight has been three times in a row between Germany and France. The Italians are more along the lines of what are you doing for me lately. The Greeks may have just given up all hope of breaking away right now and will have to suffer even more before they rise up. What may bring Greece to its knees is actually the Refugee Crisis. Where Greece was the popular spot for vacations for the Northern Europeans, because of the refugees the hot spot has shifted to Portugal. Greece needs tourism and so does Italy. In both cases, the refugees are deterring tourism which both countries need desperately.

The Monetary Crisis still seems ready for its turn, but most likely following the first quarter 2018. We intend to update the Monetary Crisis Cycle report in the months ahead.

Rise in government on average to about 40% of GDP means it is suppressing the economic growth.

Britain to Raise Retirement Age to 68 to Try to Save Pensions

Posted Jul 27, 2017 by Martin Armstrong

The Work and pensions secretary David Gauke have revealed that parliament proposes to raise the pension age to 68. The pension crisis that is brewing throughout Western culture reflects the insanity of lowering interest rates to try to “stimulate” the economy. This policy has set the stage for the next great crisis brewing, which will expose the postwar Socialism is just a total failure.

The rise in government on average to about 40% of GDP means that this is consuming the wealth of every nation and suppressing the economic growth. This is forcing people to work longer to survive and hence they do not retire quickly into the sunset holding on to jobs that then in turn cause higher unemployment in the next two generations. There is not much we can do about this because politicians will never act to prevent a crisis, they perfect to act only when a crisis emerges. Consequently, the Pension Crisis is simply unavoidable.

Categories: Pension Crisis 

Truth lurking in the shadows behind the Magnitsky Act.

Browder – Russia – Trump – Safra

Posted Jul 26, 2017 by Martin Armstrong

William Felix Browder is all over the news trying to play into the whole Russian/Trump affair muddling the waters. Browder founded Hermitage Capital to invest exclusively in Russian companies. Edmond Safra, the notorious banker who was the center of what was called the Money Plane, put in $25m of seed capital for Hermitage Capital and Safra’s Republic National Bank of New York controlled it. This was the Russian deal I was being asked to join. When HSBC bought Republic National, Browder embarked on a series of share deals which has left him with complete ownership because the whole Hermitage Capital deal was at the center of a real political controversy many were trying to bury for at the center was the attempt to take over the. natural resources of Russia.

The scheme set in motion the plot to get the president Boris Yeltsin to steal $7 billion from the IMF loans I have written about before. He did, and Safra steered the bank wire transaction through Bank of New York to a company in Geneva claiming to refurbish the Kremlin. As soon as the wire took place, Safra’s Republic Bank of New York ran to the U.S. Justice Department and informed them that a $7 billion wire just took place at Bank of New York from Russia and it was money laundering. The transcripts of the bankers pleading guilty and got only 6 months house arrest, shows when asked what was the laundering, they simply said it involved ransoms for Russian business men. Safra was in league with the U.S. government to move billions of dollars in US currency notes on skids to Russia by the plane load. Clearly, the U.S. government was involved in this scheme to that extent (see Money Plane).

So while Browder portray’s himself as the businessman who was a victim of Putin, to set the record straight, Browder’s grandfather was the leader of the American Communist Party and stood for election to the Presidency of the United States against Theodore Roosevelt. His Grandfather was a communist who was later imprisoned in the McCarthyite period. Browder claims he went to Russia in 1995 to regain his roots. However, he ended up among Russia’s highest profile investors linked to Safra who in turn was linked to Boris Berezovsky, who was close to Yelstin. Yeltsin was going to run for election in 2000 a second time. This is when the plot to takeover Russia was hatched. Yeltsin was threatened to be exposed by the Bank of New York money laundering and he was to resign, keep the money, and appoint Berezovsky president. Yeltsin realized he was set up so that is when he turned to Putin. Berezovsky fled to London, others fled to Israel, and Putin then probably had Safra killed. Since Safra controlled Hermitage Capital, it was seized. The claim of Browder that his Russian tax attorney Sergei Magnitsky was imprisoned and died before trial was trying to fight corruption in Russia is far from the truth. Putin seized all the assets of Hermitage Capital and Browder fought in Congress to get the Magnitsky Act passed. I always found it very strange that here the object was to influence the election of president of Russia by blackmail, and the Congress passes the Magnitsky Act as if it was human rights because of some attorney who dies in a prison in Russia. Something is seriously missing.

Both Browder and Putin disliked the imprisoned oligarch Mikhail Khodorkovsky who back in 2003 was considered the wealthiest man in Russia. Yukos was one of Russia’s major corporations for oil and petrochemical industries and was also one of the world’s largest non-governmental groups. It was founded by Mikhail Khodorkovsky in 2003. Khodorkovsky had considered running for President crossing paths with Putin. However, he would also not join in with Safra and his Hermitage Capital seeking to corner the resources of Russia in gold, diamonds, and energy.

Back in October 2003, Khodorkovsky was arrested and charged with fraud and Putin froze shares of Yukos shortly thereafter on tax charges. Putin’s government took further actions against Yukos, leading to a collapse of the company’s share price. Yokos was sized and later declared bankrupt on August 1, 2006 by a Moscow court. In May 2005, he was found guilty and sentenced to nine years in prison. In December 2010, while he was still serving his sentence, Khodorkovsky and his business partner Platon Lebedev were further charged with and found guilty of embezzlement and money laundering; Khodorkovsky’s prison sentence was extended to 2014. After Hans-Dietrich Genscher lobbied for his release, President Vladimir Putin pardoned Khodorkovsky, releasing him from jail on 20 December 2013 and he moved to Switzerland. Browder claimed that Khodorkovsky was doing asset stripping and transfer pricing. Browder said: “We found him to be our toughest opponent. That is one of the reasons I am so sympathetic with President Putin.”

Browder turned against Putin and he was denied a visa to reenter Russia. The official Russian explanation for the decision to revoke Browder’s visa  was formally announced in a letter he received on November 25th reading: ‘The decision to deny entry into the Russian Federation for Mr William Felix Browder has been made by the competent authorities in accordance with Article 27, Item 1, of the Federal Law No 114FZ.’ This article says that entry can be denied to someone in the interest of ‘ensuring the security of the State, public order or public health’.

Hermitage Capital Management claimed it was pioneering American corporate governance and commercial probity in the boardrooms of Russia’s largest companies. That is by no means the story I was fed to invest $1 billion into Hermitage Capital. It was all about natural resources of Russia. Hermitage Capital grew raising money to $1bn in the first two years.

Sorry, I just do not believe the propaganda that surrounds trying to rewrite history. Khodorkovsky was considering running for politics and was financing political parties that opposed Putin. He clashed with Putin over the corruption in the Russian government. There is a whole other side to this story that nobody seems to be interested in exposing because it just might reveal American attempts to manipulate Russian politics that backfired and opened the door to Putin. The connections between Safra and the government to enable the Money Plane is possibly the reason I would allege is how Browder was able to get the Magnitsky Act passed trying to get his money back. If I were Trump, I would open this black box to discover the truth lurking in the shadows behind the Magnitsky Act.

Europe refugees - 2021

 Schulz Warning if Italy is Not Given Aid by the EU The Refugee Crisis Will Explode Again

Posted Jul 25, 2017 by Martin Armstrong

SPD chancellor candidate Martin Schulz has come out and warned that if Italy is not given support, then it will send the refugees to Germany which it can no longer afford to accept any more. Schulz is warning that the refugee crisis in Germany will explode, if Italy is not provided support from the European Union. Schulz is saying that since 2015, over one million refugees had infiltrated Germany and it is just beyond control. The question becomes whether this will get much worse and distrupt the German elections in the come September.

If the EU does not stop the refugee invasion, they are going to suffer a tremendous economic decline beyond imagination going into 2021.

Yeltsin turned to Putin for help and then handed him the Presidency.

Trump Jr & the Russian Meeting

Posted Jul 18, 2017 by Martin Armstrong

A lot of people have picked up on the mention of the Magnitsky Act is Donald Trump, Jr. statement of a meeting with a Russian woman. Trump Jr., said the meeting was “the most inane nonsense I ever heard. And I was actually agitated by it.” I seriously doubt that the woman explained the full background as to what took place in that affair and it is not likely that she even fully understood what took place behind the curtain. This Magnitsky Act was passed by Congress to “punish” anyone who was involved in sending him to prison where he dies before getting a trial. This is the company that was started by Safra in which they were soliciting me to join in Russia and I declined. This was the plot to takeover Russia by blackmailing Yeltsin  to step down. When Yeltsin realize he was being set up by NY bankers to grab the natural resources of Russia, he turned to Putin for help and then handed him the Presidency.

Just as the undercover tape on CNN exposed that everybody tries to influence political elections of friends and foes, the attempt to takeover Russia by the NY Bankers was at the center of my issue and is why there could never be a trial. They did not know how much I knew and they knew I had very good contacts all the way up even in Russia. Even Maggie Thatcher had asked me what I knew about a secret underground facility Russia was constructing that satellites could not see back in the Nineties. As I said, the fundamental principle in law is you never ask a question you do not know the answer to. Who knows what will come out. That was their problem with me.

And here’s a statement by Donald Trump Jr published on 11 July 2017:

To everyone, in order to be totally transparent, I am releasing the entire email chain of my emails with Rob Goldstone about the meeting on June 9, 2016. The first email on June 3, 2016 was from Rob, who was relating a request from Emin, a person I knew from 2013 Ms. Universe Pageant near Moscow. Emin and his father have a very highly respected company in Moscow. The information they suggested they had about Hillary Clinton I thought was Political Opposition Research. I first wanted to just have phone call but when that didn’t work out, they said the woman would be in new York and asked if I would meet. I decided to take the meeting. The woman, as she has said publicly, was not a government official. And, as we have said, she had no information to provide and wanted to talk about adoption policy and the Magnitsky Act. To put this in context, this occurred before the current Russian fever was in vogue. As Rob Goldstone said just today in the press, the entire meeting was “the most inane nonsense I ever heard. And I was actually agitated by it.”

You cannot reverse a recession/depression by lowering interest rates

Navigating the Business Cycle = Prosperity

Posted Jul 18, 2017 by Martin Armstrong

The key to the future is understanding (1) the past and (2) how everything functions. Sure there is a risk of a Dark Age after 2032. Hopefully, we can learn from the past to push things in the right direction at least for once. For whatever reason, the people who like to run government are the least qualified. They seem to be people who just like to order others around.

Since they have typically never had a job in the real world, they remain clueless about how to really deal with society no less the economy. This last crisis is the classic example. We have people in power who do not understand the past no less how things really function. As a result, someone comes up with this idea of lower interest rates to stimulate demand and NEVER even once do they review history and asked – Hey; did this every work before?

I find it truly amazing that I can even write about how lowering interest rates failed to stimulate the economy for almost 10 years in Europe, and yet people want to argue that somehow I am wrong. They never review the past and offer only opinion often taught in school as if that makes it absolute doctrine. Interest rates NATURALLY drop in a recession/depression because demand declines as people lose confidence in the future.

You cannot reverse a recession/depression by lowering interest rates. Until people BELIEVE they can make a profit in the future, they will never borrow as long as the horizon appears dark as dismal.

This solution from the 2007-2009 crisis of lowering interest rates has undermined the Pension funds. This has set the stage for the collapse in government as pensions being to fail first in the state/province level of government and municipalities.

I’m sorry. This is not Nobel Prize winning theories here. All you have to do is just open your eyes, shut your ears to propaganda, and look at the history. Just ask what happens and let the charts show you without political bias.

Throughout history, the solution to every crisis sets the stage for the next crisis. This is what happens when we have unqualified people running the joint.

The key to making money to secure your future is to shed all bias and just let the markets dictate the outcome.