Gold the Real Breakout

Posted on November 6, 2013 by Martin Armstrong

QUESTION: Martin

Did you imply that a gold bull market really only begins when gold exceeds its 1980 high adjusted for inflation? That would imply that eventually gold outperforms inflation which I do not think it does. Adjusting for currencies and inflation gold would need to about double from here to reach that level. If it ever reached that level wouldn’t that be a sell zone rather than expecting a breakout?

D

ANSWER: Gold indeed is not linear so it will not track inflation because it is a commodity. This results in bursts of price movement that amounts to catch-ups that get everyone excited assuming it will last forever and it never does as is the case with any commodity. We ran these charts to demonstrate that gold was in a bear market and that it was really declining in a basket of currencies in the 1980s and early 1990s.

What we do see is that gold will eventually exceed the 1980 high in real terms but probably on the third try and not the second. This is just a trading pattern as was the case with the Dow Jones trying to get through the 1,000 level where it was the 4th time that became the charm (1966, 1968, 1973, 1983) . So yes, gold will be a selling opportunity on the next rally that will exceed the 2011 high nominally and test the 1980 high in real terms. Then there will be another correction, and most likely the third rally will be the breakout.

Gold is important to watch because it will signal the real break in public confidence since the Goldbugs will be discredited and the majority will see them as always wrong and will fight the gold rally. That is the REAL fuel necessary to see it rise dramatically. It has absolutely nothing to do with fiat, hyperinflation, Fed balance sheet, or missing gold from Fort Knox.

The Shift from Bonds to Stocks

Posted on November 6, 2013 by Martin Armstrong

PIMCO lost the mantle of the largest fund as capital withdrawals reached $38 billion this year as money moves to equities. The largest fund is now Vanguard. This is part of the cycle shift. While there is likely coming a near-term correction, everything is still pointing to capital flight from bonds and banks into equities. If you are European, who have to be crazy not to buy the US share market given the value of the Euro, the pending bail-ins, and the proposed IMF confiscation of 10% of all deposits to pay for the failed Euro and banks. This is the same shift we saw in the 1929 bull market.

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Various Cycles

Donating to Promoters & Bankers – The Wall Street Charity

Posted on October 26, 2013 by Martin Armstrong

QUESTION: Martin, you said in a recent blog: “Gold peaked with the low in the ECM in 2011 and it should rise after 2016 into 2020. This is a matter of the overall business cycle.”

Have you now changed your major low in gold forecast from the original before or in Jan 2014 to now in 2015? Has your gold major low forecast cycle analysis changed to expect a major low in gold before 2016 now instead of by Jan 2014?

And your original forecast of the earnest rise in gold from 2014 through 2017 to now from 2016 to 2020? we will all be frail by then!

Also, is this a sudden sense one gets from reading your blogs these days of your new found enamoured feelings towards stocks now? LOL

Has Martin joined the Dow 31000 crowd and gold back to $250 bandwagon?

ANSWER: The low and the high are different events. The earliest for a TEMPORARY high is 2017. However, if we are looking at a full blow collapse in pension funds, escalating interest rates, sovereign debt collapse and rapid acceleration due to interest rates, then the cycle may be extended into a high for 2025 WHICH I HAVE STATED BEFORE with a postponement. If we get a cycle inversion where all government assets decline and capital loses full faith and confidence in government, then the next cycle into 2024 could be exceptionally wild and gold will invert relative to the ECM. This Private Wave finally peaks in 2032 so we have only 2 more 8.6 year waves after the current one and they should be a Phase Transition with capital in full flight running away from government. The 2032 high may be the FINAL high for gold and all tangible assets in the counter-trend to PUBLIC(government) assets.

So a bull market phase is 13 years, then 23, 26, 31-32, 37 and 51. I have stated many times you get the 2 to 3 year correction after a 13 year rally as is the case often with these other intervals as well. NOTHING moves in a straight upward direction. There must ALWAYS be the counter-trend move. A 23 year rally brings us to the 2022 target on the next wave. If gold rallies into that turning point and declines into 2028, it has completed the cycle inversion from Public to Private Wave formation. A rally from 1999 in the 32 category brings us to 2032. This will all be laid out in the upcoming Special Gold Report as will the case of what REALLY moves gold historically – not the bullshit sales pitches..

Gold has NOT yet exceeded the 1980 high adjusted for inflation using a 1981 based CPI where the Dow has done so, You just have to wake-up and realize that some of these theories are sales gimmicks that sound logical but there is NO proof like the hedge against inflation.

Anyone who has ever eaten a carrot has died. That is an ABSOLUTE true statement that can be proven. Now introduce TIME and you will see there is no real correlation between death and eating the carrot. This is the entire problem with analysis – it inevitably tries to create a one-dimensional relationship when it is far more dynamic and complex.

If you continue to argue the same dead points that were argued for 19 years as gold went down from fiat to hyperinflation, then you will be one of those fools who is easily separated from their money. EVERYTHING is connected. Capital shifts between assets classes for each boom and bust and it floats around the world from one country to the next in search of that one-way street to all the riches of the world. You have to determine if you want to separate from the herd or run off the cliff like the rest of them.

YES the Dow has a chance of doubling. I have stated that BEFORE. However, that does NOT imply a collapse in gold to $250 or $100 or anything else insane. I would not expect gold to go much beyond a retest of the 1980 high of $875 in the worst of cases in this nominal world where the one-eye analyst is king. Gold should fade the $1,000 level and then the headlines will claim gold is dead. When that happens, the lows are near.

So you may hate my guts because gold has declined. I get such hate mail it is unbelievable. One even said ever since I was released gold has declined simply because I alone said so and that proves I can manipulate the world. I suppose everything I touch turns to gold like some James Bond movie as well. As long as you keep trying to find someone to blame for your own mistakes, you will never see the light. Don’t bother going to church or help charities. You donate far too much now to the promoters and bankers. I am sure they appreciate your donations.

Hyperinflation Question

 October 25, 2013 by Martin Armstrong

The hyperinflation takes place only in countries without bond markets and have been typically the interim revolutionary government as was the case in Germany. The reason why hyperinflation takes place is because there is a new government that typically repudiates all debts of the previous. Even the USA when through such a period with the transition from the Continental Currency to the US dollar that was swapable into bank shares at 100:1.

When there is a government in place, what you end up with the Draconian attack against all resources of the people. This results in the collapse of the rule of law, rising taxes, and asset confiscation. This is how great empires collapse. This is what we are going through currently.

The government is sucking up a larger and larger share of national wealth. November 1st, you will see the first cut in food stamps. Entitlements are curtailed. The government will not simply print money to meet promises. They default on those promises just as we see plans for BAIL-INS taking depositor’s money rather than BAIL-OUTS as was the case following 2007.

This period is extremely hard to predict because the rule of law is collapsing. Privacy is under threat and they are hunting down every penny. When Hitler outlawed Germans having accounts outside of his reach, the Swiss passed their secrecy laws in 1934. Today, the Swiss government has given up everyone and has lost its real sovereignty in that regard where not even Hitler acted so recklessly as has the USA, Germany, and Britain not to forget France. They are all attacking the Swiss and demand their pound of flesh.

The system will flip to asset inflation as capital begins to leave the public sector. But this is not DEMAND led inflation inspired by consumers, but Asset Inflation caused by a shift in strategy. There is also Currency Inflation where by assets rise because they are undervalued in the eyes of foreign capital. Both of these are distinctly different from the classic DEMAND led inflation because the economy is doing well and that manifests in an increase in buying power.

The deflationary aspect is also three-dimensional. Classic Deflation by definition is declining prices concurrent with Monetary Restraint Deflation in a Keynesian system whereby government deliberately attempts to prevent a boom in some sector. When a currency rises too high, a nation is unable to sell its goods overseas and thus prices are too high relative to the international value causing discounts and price declines creatingCurrency Deflation. Then there is the normal Demand Deflation that unfolds because of an economic decline resulting in a collapse in demand and uncertainty emerges.

We are really trying hard to address the confiscation of pension funds. This is a serious risk and part of this deflationary atmosphere where government is sucking up everything it can. I would not retire. Withdrawing funds from a 401K may be an option. But that is premature just yet. This monumental question will be address. What will be the best solution is not yet identifiable

MANIPULATION – Is it a Matter of Definition?

 

Posted on October 16, 2013 by Martin Armstrong

QUESTION: Hello Mr. Armstrong,
Thank you very much for your blog – I visit daily!
Is it possible that both you and the gold bugs are correct?
I think your argument with the gold bugs may be a misunderstanding.
The problem lies in how you define manipulation.
When a large sale occurs in illiquid hours, I can’t think of a legitimate/logical reason – If you can please advise.
ANSWER: If you define manipulation as just impacting a market for a quick buck that is one thing. If you define manipulation as change the actual trend – that is impossible. The banks with their proprietary trading ALWAYS seek the guaranteed trade. They are goosing the market in one direction or the other. However, that takes place WITH the trend. Trying to change the trend as Japan attempted for 23 years utterly failed.
The Fed also KNOWS it does not control even interest rates. The long-term rates have NEVER been within their ability to change. This is what QE was all about. They bought the long-term trying to bring down those rates and are now trapped. They are so short, and attempt to reverse sends the rates sharply higher.
Do people try to goose the price of a market? Yes. Is a concentrated sale altering the trend? NO. Gold is in a bear market anyway. It did not change the trend. Excusing this as a manipulation and somehow not real causes losses because people then are encouraged to hold all the way down and typically capitulate at the low and then do not come back.
The point is markets are markets. There will always be attempts to goose the price of anything. But this takes place with success when it going with the trend. Floor brokers have often fished for stops. This is true in all markets.
The definition is clear. NOBODY, not even government, is capable of manipulating anything against the free markets, You can goose the market and this is what makes the spike highs. Gold rallied from $400 to $875 between December 1979 and January 21st, 1980. Was that a manipulation? The dealers were bidding it up to suck in everyone they could. Then in silver, they altered the rules at the top and increased the margin to go long and almost twice the margin to go short. Everyone suddenly heard about the Hunt Brothers. I knew about them in early 1970s. Suddenly everyone knew because that is how the dealers sold the high.
The problem with the Goldbugs is simple. Anything to the upside is “real” while anything to the downside is a “manipulation”. Our computer model projected January 21, 1980 to the day more than a month in advance. It was a matter of time and how long such a Phase Transition can be maintained.
Do not confuse playing with amplitude with the ability to actually manipulate and change trend. The first is common, while the latter is impossible.

Why stocks rise ?

CAPITAL APPRECIATION v EARNINGS

QUESTION: Mr. Armstrong could you expand your analysis of this statement [STAGFLATION]. You indicate  that demand will decrease and cost will increase.
Does this not all lead to lower or stagnant corporate earnings?
Yet you expect higher asset prices including stocks. If equity ownership is a call on future earnings which are stagnant or declining why will equity prices increase? Will they rise simply from demand with no consideration to value or the competition of rising rates?
By some analysis the expected return from equities for the next 10 years( based on earnings growth) is no greater than the return from a 10 year Treasury. Can you comment on this statement and why stock prices will rise if the analysis is correct?
The expectation of rising rates is that for Public as well as Private debt, and how will it affect the yield curve?
Do you expect short term rates to rise as well?
Best Regards, RC

ANSWER: Equities rise sometimes for earnings and at other times for capital appreciation. This is the problem with ALL fundamental analysis. It attempts to reduce everything to a single one-dimensional cause and effect. We live in a multi-dimensional world where the cause behind each effect can vary tremendously based upon the COMBINATION of trends. The Price Earnings Ratio from July 1929 into the September 1929 high went NEGATIVE as the price advanced 163%.

From the March 1937 top to the lows seen in April 1938, the Dow declined 47% as earnings fell only 12% from October 1937 to April 1938. Over the next 10 years, covering the war, if you bought the Dow based upon earnings you would have lost money. If you had they sold the Dow when earnings rose, and bought back on falling earnings, you would have outperformed the market. Clearly, trading based upon PE ratios is about as consistent as trading with the rise and fall of women’s skirts.

The PUBLIC WAVE began in 1934 and ended in 1985. Hence, the confidence shifted to government and this led to the huge stagnation in equity values that resulted in the take-over boom. The book value bottomed in 1977. Those who attempt to publish analysis arguing that the return from equities for the next 10 years will be no greater than the return from a 10 year Treasury, have absolutely no understanding of markets and in their one-dimensional world they think everything reaches some perfect state of harmony. It is irrelevant!! Stocks rise either (1) for earnings when interest is lower, and (2) stocks rise as an alternative to banks – capital appreciation.
The expectation of rising rates is on the horizon will be for Public as well as Private debt. However, those rates will rise as capital is forced into the market for higher yields and CAPITAL APPRECIATION. The lower rates in government debt and bank deposits is forcing capital out into the equity markets. Short-term rates will rise but they will NOT impact stocks until the rate of interest exceeds the expected return on equity be it through dividends or capital appreciation.

Japanese interest rates

Posted on October 4, 2013 by Martin Armstrong

However, Pension funds and socialism are imploding. It is not a question of can rates be held down artificially, it is merely a question of how long can such attempts be sustained. In the case of Japan, its debt is mostly internal. Japan for a long time maintained currency controls so you could not issue private notes in yen without each note being approved by MOF (Ministry of Finance). There are no such restrictions on US dollars. Hence, the dollar debt is elastic expanding globally as private companies and foreign nations issue bonds in dollars compared the exact opposite in yen.