Linked currency

When they Hang Bankers – The New “Financial Terrorists”? Beware!

Posted on December 16, 2013 by Martin Armstrong

Those who think the Gold Standard brings stability must also believe in the Tooth Fairy. There was a huge CONTAGION that became widespread because of debasements during the 14th century. The silver to gold ratio was disrupted everywhere in Europe thanks to French debasements. The ratio stood at 13.1 in Florence compared to 12:1 in France during 1316 who was trying, like the Silver Democrats of the 19th US Century to overvalue the price of silver. By driving the price of silver even higher relative to gold, they forced the ratio in France down to 5:1 in 1343, setting off riots in Florence. Silver was being drained from the local economy flowing to France where it was over-valued and this created a sharp recession in Florence with the shortage of money (silver) for domestic use.

Why? For you see, wages and local commerce were conducted in silver. Gold was used only for international trade. Driving the price of silver higher raised the cost of production which simultaneously reduced the value of trade and even outstanding loans made to individuals and sovereigns alike. This caused a drop in production and rising unemployment. Hence, the first riot came in 1343 whereby the French Debasement had contributed to the impatience of the population. Switzerland did the same thing pegging the franc to the euro because the franc was rising and manufacture threatened to leave. Hence, Switzerland has imported massive inflation raising the cost of living and doing business there to TWICE that of the United States.

The Florence monetary system was a Two-Tier system whereby gold was used ONLY for settling international trade and silver was used for domestic commerce. Those who simply think because coins were precious metals and thus were not “fiat” yielding some land of Utopia where the value of money was constant while assets rose and fell, cannot grasp the simply concept that assets rise and fall ONLY in terms of purchasing power of the currency regardless what you use for money be it gold or St Patrick’s discovery or Slave Girls that were the unit of account for money in Ireland.

Bitcoin is a bubble

Dow Jones Industrial & BitCoin Correlation?

Posted on December 14, 2013 by Martin Armstrong

Reply

QUESTION: Hi Martin; It is very interesting that both virtual currencies, Dow Jones Industrial Average(US Stock Market) and Bitcoin, topped out on November 29, 2013. I’m not saying that this is the top of the markets, I’m saying the Dow(US Stock Market) is Bitcoin for the Super Rich. I’m saying that they are both are now correlated. Both are being valued as a way of protecting wealth from bail-ins. Therefore, as goes the Dow, so goes Bitcoin. Is the Dow Jones Industrial Average in a bubble? Your answer may correlate to Bitcoin. What do you think?
Thanks,
F
 ANSWER: Congratulations! You are starting to see the interconnected world. The reason both Bitcoin and the Dow peaked the same day is because human collective behavior is the same regardless of the instrument. Why has the Economic Confidence Model worked so well? Because it was NOT based on a single individual market. It was based upon what you just observed. Humans speculate like clockwork. What they speculate in honestly makes no difference. Some people feel more comfortable with gold. Others stocks, others real estate. They will ALL act for the same reason, to preserve capital. What they invest in depends upon the mood and what they BELIEVE in.
The Goldbugs have taken this so personal that the world is wrong and only gold will survive and they attack anyone who disagrees. Their dream that EVERYONE will buy gold is stupid for it is no different from expecting everyone to vote Republican or Democrat. I am a political-agnostic because I see both sides and yet they agree on one thing – government needs to control society albeit for different reasons.
Both peaked because it is a cycle of human trends, not per se a specific market. So yes, you get these correlations that verify the overall trend. However, Bitcoin is a bubble for its value soared in a Phase Transition that the Dow Jones has not yet accomplished. Keep in mind that the Dow can absorb huge capital where and Bitcoin or even gold cannot.

2014 for a reaction high in the Euro

How to Interpret Consecutive Directional Changes

Posted on December 14, 2013 by Martin Armstrong

Reply

QUESTION: Martin – how should consecutive “Directional Change” indicators be interpreted?
Regards,
DR
ANSWER: Normally this type of pattern produces just a sideways churning back and forth. This is why in the Euro there has been nothing to write about. It is just a deflationary contraction. The dollar rose sharply between 1980 and 1985 also 1929-1932. Whatever the currency is during an economic decline will rise in purchasing power as people sell assets and need cash.

What we are facing on this cycle is highly unusual and it is why it has become so confusing. The traditional flight to quality is you run from PRIVATE assets into cash/government bonds (PUBLIC). However, what do you do when it is government that is collapsing? You will have no choice but to run to PRIVATE assets. This is why we are seeing real estate rise and equities.
The models have targeted 2014 for a reaction high in the Euro. That appears to be lining up with the EU elections and people are starting to become more violent. That is the distinction between pre-2014 protests and post.
We are expanding the Forecasting Arrays to include more models. This will include different types of volatility so you can see when to expect over-night moves versus intraday.

Deflation Causes a Currency To rise

Posted on December 12, 2013 by Martin Armstrong

The so-called Flight to Quality is the shift in money flows from one sector to the other that traditionally is reflected in the currency. The inflationary boom into the 1980 crashed and burned into 1985 sending the dollar to records highs for the century. Money moves fromPRIVATE to PUBLIC and that is where it is. The rise in the currency is NOT indicative of an economic boom or strength. The currency will rise as money flees from assets. The higher the currency moves, the greater the decline in trade and the higher unemployment will rise.

The Plaza Accord of 1985 was all about manipulating the dollar lower to reduce the trade deficit at the time and in theory create jobs. As Europe declines in economic activity, people move from bonds currently into cash. But the Euro is not exploding to the upside. It is really just holding for this is not the normal flight to quality. Capital is very confused regarding where to go in Europe, which is why the DAX has done well because people are moving internally within Europe into Germany in anticipation that if the euro cracks, they will get Deutsche Marks.

Bubble in Stocks?

Posted on December 11, 2013 by Martin Armstrong

The Amazing thing is people are already talking about this is a BUBBLE that is unsustainable. They are now claiming household income is down 4% yet the S&P 500 is up 70%. They are incapable of any real analysis. The RETAIL investor is NOT involved in this market. There is no wild speculative fever. They are obsessed with this being a bubble purely based on new highs with no regard for the pattern.

There has to be a Phase Transition for a Bubble. That requires a near doubling in the value within often the last year. We have new highs in the DAX as well. Why? Is the European economy doing well? No way!

Capital is fleeing from PUBLIC to PRIVATE. This is capital preservation – not wild speculation. Pension funds are moving into equities. Central banks are even putting out their reserves to be privately managed. The IMF is proposing taking 10% of all accounts in a bank in Europe. They are arguing for a SuperBank in Europe that will have the power to directly tax people in Europe and no nation can stop them.

HELLO! Just where is the wild speculation these people are yelling about that make up a bubble?

Euro & Its Rise with Deflation

Posted on December 11, 2013 by Martin Armstrong

QUESTION: Dear Mr. Armstrong,

You have not reported on the sinking Dollar for a while. Is this just one of the phases of competitive devaluation between the majors  with the US selling  or is it China liquidating.  With the Euro in a mess, the Swiss banks cracking and the $ falling where is the sense of it all and how much further  can the Dollar fall from here.

Thank-You,

PF

ANSWER: No, the Chinese are not liquidating dollars, they are shifting from PUBLIC to PRIVATE assets. They will curtail accumulating dollar reserves and invest more domestically. Nobody is buying Euros right now outside of Europe. The number for the Euro have not changed. Keep in mind that the higher the Euro moves, the greater the economic decline. The Swiss have shot themselves in the foot. This is a question of timing rather than price. We will have a report on world currencies very soon.

The greater the economic decline, the more deflation and the higher the Euro. But the numbers remain unchanged.

Real versus virtual move

Dow Has Not Broken Out Yet

Posted on December 3, 2013 by Martin Armstrong

Just as I have warned that gold did not breakout above the 1980 in real terms and thus it could not continue to advance, the Dow has not broken out just yet either, this is purely a nominal currency move and not yet in real terms.