US/ UK versus Europe. 2014= 2027

Then & Now – Always the Same

Posted on July 3, 2014 by Martin Armstrong

 

We are at the 1927 Phase of events that is important to understand. There has historically always been a difference in economics trends between Europe and America. This became self-evident back in 1720 that was the Mississippi and South Sea Bubbles. One of the earliest forecasts that our computer made back in 1980 was that Britain would separate economically from Europe and align more with the United States. This was a shocking forecast that made no sense to me. Countries just do not invert economic trends so easily. Because of that forecast, I really had to develop the means to communicate with this machine and to inquire what was behind that forecast.

After teaching it language and the ability to communicate, Socrates began to teach me. This forecast was spectacular for this was the correlation models, not the laptop version that only analyze individual markets. When the global correlation models were developed, this is where the real AI came into existence. The computer had correlated all the European economies and markets the discovery of the North Sea Oil changed the dynamics of the entire layout. The introduction of energy shifted the British economy and was aligning it with America rather than continental Europe. This shift has been maintained and is part of the reason the British pound still exists against the euro.

Now we see still the long-range impact of that forecast made so long ago. To this day, the central banks are splitting and moving in separate directions. Interest rates will rise in Britain and the USA against going negative in Europe, This is precisely the same event that kicked off the Phase Transition into 1929. The central bankers had a secret meeting in 1927 and the USA lowered interest rates in an attempt to deflect the capital inflows into the USA from Europe. That confirmed Europe was in trouble and set the stage for the subsequent events including World War II that would not have taken place but for the economic crash in 1931 that even brought Adolf Hitler to power in 1933 along with Mao in China and FDR in the USA. It is ALWAYS economics.

The lowering of interest rates by the Fed in 1927 trying to make Europe appear more attractive confirmed Europe was in trouble and set in motion a shift in trend within the USA that was monumental. This marked the peak in the Florida real estate bubble. As that bubble burst, capital then shifted into the US stock market even with rising interest rates. Hence, the Dow rallied with rising interest rates – it did NOT decline. As the expectation of profits exceeded the rate of interest, the market rallied. As I have said, it is always the net return that counts.

We can see that looking at the timing, it was exactly 26 months from the central bank meeting to the people in the US stock market during that phase transition.December 13th, 2013 began the announcement that the Federal Reserve would begin its $10 billion tapering of QE3. If we applied the same timing of 26 months, that would bring us to February 2016.

July 2013 was interesting for this is when Croatia becomes the 28th member of the European Union while Vítor Gaspar, Minister of Finance of Portugal, resigns due to lack of support and willingness to strengthen austerity measures, prompting a political crisis. The European Central Bank and the European Commission release a joint report on the banking system in Spain, indicating that system is solvent and will not require “further program disbursements. Greece secures an additional 6.2 billion euros from the European Commission, the European Central Bank and the International Monetary Fund despite warnings that the Greek government is moving too slow to reform the government.

On July 21, 2013, Voters in Japan go to the polls for an election with the governing coalition led by Shinzo Abe winning control of the upper house. The economic decline in China begins to be noticed as Wells Fargo of the United States becomes the world’s largest bank by market capitalization, replacing the Industrial and Commercial Bank of China amid an economic slowdown in China. China begins a major effort to boost its economic growth with business tax breaks and export liberalization, amid an increasing industrial slowdown.

In the USA, the Dow Jones Industrial Average and S&P 500 close at record highs on July 12th, 2013, with the NASDAQ hitting its highest level in ten years. On July 18th, with $18.5 billion in debts, the city of Detroit, Michigan files for Chapter 9 bankruptcy protection, becoming the largest municipal bankruptcy in U.S. history. Meanwhile, this is also when former United States spy agency contractor Edward Snowden applies for political asylum in Russia.

From sources, July 2013 is when people began to look at a shift in the tapering.The FMOC meeting noted that the economy was strengthening in July 2013 contrary to Asia and Europe. With hindsight, July 2013 may mark that pivot point from which 26 month will take us to 2015.75

When Will the Monetary System Crack?

 

Posted on July 2, 2014 by Martin Armstrong

Reply

QUESTION: Mr. Armstrong: Thank you so much for coming in front of the curtain. Your views are absolutely enlightening. You provide colour to events from experience and I have sat in meetings at the …….. bank shocked at the lack of understanding that emerges from the board of directors. You are correct. They are the people who are simply bureaucrats lacking any experience in the field they pretend to direct. I can see from our own movement of capital on behalf of clients that they are indeed just trying to get off the “grid” as you eloquently put it. They seem to be focused on real estate, but there are some starting to notice the American stock market even here in London. I can also see what you are talking about with capital flows and the dollar rally that seems inevitable from the European perspective even though I am not allowed to speak to the press working in a bank.
My question is just this. Will the monetary system crash in 2020 or will it be on the next cycle in 2024?
Thank you again from those in the field who can only read and not speak. You do it for us. Good on ya
EP
PS It is interesting to watch people trying to plagiarise you claiming to see war cycles and trends without any depth of what lies behind it.

ANSWER: I am dealing with this question in the coming Gold Report. However, suffice it to say the crisis years are 1932 – 1963 – 1995 – 2026 based upon the Pi cycle. There is also the Monetary Crisis Cycle that I will deal with in the report. Of course, 1932 was not just the low in the US share market and the incident of the Bonus Army, it was the Presidential election that shifted power to the Democrats. FDR swore the night before the election in a radio address that it was absurd that he would confiscate gold. This rumor was being spread and the defense against it was the typical conspiracy theory argument. FDR nonetheless devalued the dollar subsequently and confiscated gold making 1932 the real effective peak.
The next target 1963 was when silver was pressing higher and 1964 was the end of silver coinage with the redemption of the Silver Certificates and the birth of even $1 Federal Reserve notes. In the 1963 series of currency, we see the appearance of the Federal Reserve note and the end of Silver Certificates.


This brings us to 1995. Here we have the low in the dollar and the high in the Japanese yen on the first thrust. This was the move that really broke the back of Japan. The subsequent decline in the dollar was the capital contraction in Japan as people liquidated foreign investments due to the fall in value in yen terms. Consequently, the land of the rising sun began to set in 1995.


This brings us most likely to the Pi cycle target after 2024.35. That is when 911 took place to the day and when Greece began with the realization that there was trouble in the sovereign debt world of Europe.
This previous 8.6 year wave that peaked in 2007.15 was just the beginning with the realization of the Sovereign Debt Crisis. The current wave that peaks in 2015.75 should start the debt crisis with more government being forced into insolvency. This is what the IMF proposal is all about and the Fed looking to impose an exit tax on the most liquid market in the world – US debt. The next wave 2024.35 will be the pulling apart of the world monetary system and the peak of this wave in 2032.95 is most likely where the tangible assets rise as a store of value in a world of uncertainty with respect to the medium of exchange.

The bottom of the 3rd wave (2011.45) in our immediate 51.6 year wave was the start of the shift in capital to private investment on a visible level against domestic views and statistics. This is when I warned the stock market would breakout and move to new highs, which was reported by Barrons. Curiously, this was the same position in time on the wave of the Decline and Fall of Athens 455-404BC. The bottom of that 3rd wave was the uprising orchestrated by the Oligarchy against Pericles in 430BC and he died the next year.
The arrogance of Athens and the Oligarchy is the exact same problem we have with government today and the abuse of the NSA. All governments are doing the exact same thing precisely on the same timeline as the fall of Athens. They are trying to eliminate the right of the people to vote and we are experiencing not merely their arrogance, but their opposition to any democratic processes the same as Cleon did in prosecuting Pericles for being honest. If this plays out in the same fashion, the US will lose its standing as the financial capital of the world as did Athens, and the real danger is with the war cycle turning up, it is the arrogance in the West among our politicians that can invite the invasion as it did in the case of Athens.
History repeats because human nature repeats and never changes. Just as the Oligarchy was determined to take back control of Athens banning democracy, we see the very same thing taking place today – hello the Troika is a controlling body of representatives of the ECB, IMF, and the EU Commission that is unelected by the people – Oligarchy of career politicians. The role of the Troika is to negotiate with member countries of the Eurozone where the state budget has run into difficulties. That is correct – the IMF and Christine Legarde holds an unelected political position without any election process of the people. This is the same as any Oligarchy.

TROIKA (Triunvirate)

• European Commission President (elected by heads of state not people)
• European Commission Vice-President , Commissioner for Economic and Monetary Affairs (Official) Olli Rehn Finland Finland
• European Commission designated negotiator; Matthias Mors Germany
• European Central Bank President of the ECB; (Official) Mario Draghi Italy
• European Central Bank Head of Department at the ECB, named negotiators Klaus Masuch Germany
• IMF Managing Director; Christine Lagarde France
• IMF designated negotiator: Poul Thomsen Denmark

Diversification by Central Banks into US equities- September 2014 risk of slowdown ?

Confusing Share Market

Posted on June 30, 2014 by Martin Armstrong

In the short-term, we still have the risk of a modest correction. There is typically the false move before the breakout. There is little question that there has been low volume over the past couple of years with light on up days and higher volume on down days.  This has been the constant attempts to short the market that causes the grinding rally. The retail speculators who are the typical buy high sell low crowd are still absent. This seems to be caused by the perpetual bearishness among the retail “advisers” and the typical mainstream press.

Yes, there has been the company repurchases, but even this has not sparked a lot of piggy-backing one expects in a bull market. Then there is the foreign central banks that have been active buyers pushing the market higher just trying to diversify. Therein lies a WARNING. Why are central banks buying stocks? (1) To diversify away from sovereign debt that they know is a huge problem, and (2) the diversification away from just dollar bonds given the lack of any alternative currency. Even Russia is smart shifting issuing their debt in dollars to euros. Why? The dollar has a risk of new highs while issuing debt in Euros has a better chance of depreciation.

Then we have the rising risks with Japan. There is a strong correlation between USD/JPY and S&P futures. What is this about? Again, diversification if war appears on the horizon with Russia and China. The risks of capital flows into the US equities remains high, but more so after September this year.

The Fed wants the stock market to rise so they can raise interest rates. They need higher rates in order to have room to lower them when necessary. We most certainly live in interesting times.

If we see rising US rates, the dollar will rise and capital will flow to the USA ......

The Press Keep Talking The Market Down – Historically this is Very Bullish Indeed

I have warned about how the press had constantly written negatively about the rising stock market during the 1920s.  Once again, the press are now hanging on the hope that the Fed will start to raise rates to justify their bearish bias swearing the market cannot be justified at these highs. However, I have shown the evidence that a bull market ALWAYS rises with rising interest rates and declines with dropping interest rates. These people who think markets will decline because of a rise in rate repeat the same propaganda they have never once investigated or bothered to check the facts. If you think the market will rise by 25%, you will borrow at 10%. You will not borrow at 0.1% if you do not believe the market will rise at all – i.e. Japan for 23 years.

Sorry, but the Fed DOUBLED interest rates from 1924 into 1929. The Wall Street Journal accused Jesse Livermore of trying to influence Presidential elections back then for they could not understand that there were international capital flows pouring into the USA. This domestic analysis is simply lethal.
True, in the past week, James Bullard, president of the St. Louis Federal Reserve bank, told Bloomberg News that the economy was improving enough to handle an increase in short-term rates next year. The Fed fears that unless they raise rates, they will have no leverage when the economy turns down. The Fed is not entirely convinced about the negative interest rate scenario put forth by Larry Summers.

The press will go nuts when stocks rise with rising interest rates. In 1927 there was a secret meeting where the USA tried to lower its interest rates to deflect the capital inflows from Europe that was creating a shortage there and set the stage for the defaults in 1931. History is repeating. US and UK rates will rise while Europe will go negative. This will set the capital flows to the USA and may yet create a bubble top.

If we see rising US rates, the dollar will rise and capital will flow to the USA especially when smart money begins to realize that the IMF solution is to freeze all public debt in Europe so you cannot liquidate and/or seize everything in the pension funds. Once you extend 30 day government paper into 10 year, how do you sell anything next year? These IMF solutions are made by lawyers who are brain-dead with zero understanding of the credit markets or human nature.
We may be seeing history repeat again like an old record that is scratched and cannot move forward. So welcome the press and their perpetual talking down the market. As long as they keep this up, we are nowhere close to a major high.

Fed’s Exit Tax on Bonds: Collapse in liquidity - Both long and short bond rate could shoot up

Fed’s Exit Tax on Bonds – Confirms Liquidity Crisis

Posted on June 25, 2014 by Martin Armstrong

The greatest threat we have to the financial stability of the entire global economy is the collapse in liquidity. Governments cannot understand that their desperate need for money that has unleashed the worldwide hunt for money that is producing the greatest collapse in liquidity on a global scale. Even just recently, the Federal Reserve Governor Jeremy Stein commented on what has become obvious that the bond market has become too large and too illiquid, which exposes the entire market structure to a contagion crisis that is capable of seizing up the world economy like never before in history since the 1720s.

International investment has been the lynch-pin of economic expansion since ancient times. International trade began in Babylonian times. Even in Athens, Aristotle wrote about the people who made money from money that inspired Marx. Aristotle believed that the creation of the market economy whereby farmers could produce excess crops and sell them to brokers in Athens who resold them in foreign lands was undermining the quiet Athenian social structure. Cicero wrote about how any disaster in Asia Minor sent panic running down the streets of the Roman Forum because of international investment. After the Dark Age, the Tulip Bubble attracted capital from all over Europe as it the Mississippi Bubble in France that burst in 1720 followed by the South Sea Bubble in England later that same year. Targeting money overseas for not paying taxes is destroying international trade and that reduces global liquidity. The greedy people in government only see their self-interest and not the consequences of their actions.

The events of 2008 when the money market funds briefly fell below par was a warning sign that we are in a bear market for liquidity. The Federal Reserve is now deeply concerned about liquidity and understands the possibility insofar as the bond market is concerned. But rather than address the issue directly that is causing the collapse in global liquidity, the Fed is directing its attention to try to slow any potential panic selling of bonds by constructing a barrier to any panic exit. According to a small story in the Financial Times, Fed officials are contemplating the requirement to impose upon retail owners of mutual bond funds an “exit fee”to liquidate their positions.

Obviously, curtailing banks from proprietary trading has also helped to reduce liquidity and this has the bankers screaming that this new policy should be reversed for it is creating a highly fragile bond market. However, what is being overlooked here is the reality of CONTAGION. Because we are in a serious bear market for liquidity, volatility will rise exponentially as liquidity declines. We are seeing the calm before the storm right now.

The risk of CONTAGION can be illustrated by the events of 1998. The 1998 Long-Term Capital Management Crisis was precisely such a CONTAGION when people could not liquidate their Russian bonds and suddenly needed cash. This liquidity crisis in Russian debt sent investors scrambling selling whatever they could in other markets from the Japanese yen to shares is equities everywhere. Yes, gold rallied briefly from $502 to $532, but it fell to new lows thereafter into 1999. They needed money and sold whatever they could to raise cash. Hence, a crisis in one area and sector has the potential to create a wave of selling in other markets that people will never see coming from the fundamentals. This is the danger of CONTAGION. The 1987 Crash was precisely that. Foreign sellers of US equities came from nowhere contrary to domestic fundamentals all based solely upon the fear the dollar would drop another 40% because of the G5 (now G20) attempt to lower the dollar to reduce the trade deficit. CONTAGION disarms fundamental analysis!

The Fed’s idea of an exit fee that would penalize people for trying to sell in a panic may sound logical, but in a panic logic goes out the window. This is not much different from banning short-selling, which Europe is moving to do. However, the Fed seems to have listened to what I have been arguing for decades. Markets collapse NOT because of short-sellers, but because everyone who is long tries to sell and there is no bid. That creates the flash crash. People will not look at the exit fee when the potential loss is greater than the tax or fee. Sorry – it will fail.

It has been mistakenly attributed to the Fed for the decline in rates over the last six years. True, the Fed can control the short-term rates up to a point within confidence. However, if confidence in the dollar collapsed, then rates would have to rise in proportion to the risk of devaluation by market forces and that the Fed could not control. This is the forces at work upon Argentina.

Additionally, the long-end has not been within the power-structure of the Fed’s control. There they embarked upon a buying spree of long-bonds to reduce the supply in hopes of lowering long-term rates. Yet the Fed realizes that it lacks the power to even try to manipulate the economy through the next down turn and thus it needs to end its quantitative easing and to allow long-rates to rise. That introduces the risk of a panic in long-bond funds and hence the idea of an exit fee. This new idea would be a more direct way the Fed hopes it could control the rise in long-rates by slowing the exit.

The Federal Reserve policy of QE purchases has extended the decline in long-rates, but this has been aided by the bid from pension funds. The short-term bond bulls have anticipated making their “risk-free” long-term debt would bring stability, but even the central banks are now buying equities. As a result, mutual fund holdings of long-term government and corporate debt have risen sharply to over $7 trillion as of the end of 2013, which is more than double that of 2008 levels. This shows there is a pool of money that the Fed realizes will wake up and run to equities as the central banks have been doing on their own.

Then there is the fact that many funds are leveraged. This introduces another complexity to the mix for leverage means you are borrowing on the short-end to buy on the long end. This has contributed artificially to further lowering the long-end yields as they dropped to under 2.5% on the 10 year. Keep in mind that playing the yield-curve like this was the very scheme that blew up Orange Country, California years ago. Buying 30 year bonds and selling 10 year bonds on a leveraged basis took the difference in rates as a profit and then when leveraged back to the actual money invested dramatically raised the appearance of the yield on the actual money put on the table. This introduction of leverage borrowing short to buy the long can reverse in a panic sending the short-term rates up faster than the long-end. Banks have being paying hardly anything and lending at spreads that are sharply higher. If short-end rises exponentially, we will end up with bank failures.

So are the Fed policies playing with fire rather than telling Congress that FATCA is destroying global liquidity? The Fed may be playing out the song Hotel California where you can check in, but you cannot check out. This will only undermine confidence even more – not firm it up. As for those who just think the Fed is all-powerful, well they will think this should protect them and buy even more in the middle of a liquidity nightmare on the horizon.

Revolutions

Will Society Ever Wake Up?

Posted on June 24, 2014 by Martin Armstrong

QUESTION: Does society ever wake up? Are there any such examples from history?

Thanks

DG

ANSWER: Of course. If society did not wake up now and then, the outcome would always be the same – a dark age. The late 1700s was a revolution against monarchy – i.e. American Revolution. Then there was the overthrow of the kings and birth of Roman Republic in 509 BC. Each of these two events was followed by a contagion where the first inspired the French Revolution and the latter the Athenian revolution giving birth to Democracy. Then there was the collapse of Communism that began in China and spread to Russia and Eastern Europe as a contagion.

There is hope that we can wake before we go to the Dark Age stage – the Mad Max Event. If there were not, I would be building a bunker on an island someplace. This all depends upon society and where it resides at that moment. We have more danger in places like France where people are so reliant upon government which has laid waste to the private sector exactly as communism did in Russia.

The difference between China and Russia is important. In China, they did not try to change the thinking of society, they merely punished those who disagreed openly. Under Stalin, he persecuted people for having a brain. Therefore, China’s rebound has been spectacular because people were NOT reliant upon government. The more a society relies upon government the greater the damage to its economic potential. It requires a control-alt-delete reboot.

It is similar today where we have smart phones. We now push a button to call a friend. Lose the phone and most of us have no idea what phone number to call any more. We become dependent upon the technology. The same is true with government. In Ukraine, the people simply did not trust government and have had an independent streak to always maintain some self-reliance.

The future depends upon that quality. It will vary from region to region even within the same nation. For example, stop the flow of food into NYC and they begin to starve after 10 days. You would see a mass exodus raiding the homes in the suburbs. The city people rely upon someone producing the food 100% and have no land to even grow a tomato. At least in the suburb, they can plant something assuming it is not robbed by another.

This is the problem with all analysis. Only a fool cannot see that there is something beyond a one-dimensional view of the world. Everything they look at they twist into their own view and fail to understand that this is a multi-dimensional world where the same fundamental does NOT produce the same result perpetually. This is a combination of trends, which merge together to create a dynamic future that leaves opinion always trying to justify its errors.

Society will wake up, but not necessarily as a whole on a universal basis. There will always be differences of opinions and culture for everyone’s history dictates their future. Germany demands austerity because of the 1920s hyperinflation after the communist revolution of 1918, and the USA stimulates because of the 1930s deflation. There is NEVER a one size fits all outcome for everyone. They simply fight the last war over and over again blind to the changes because of their prejudice.

Gold & The Private Wave -2032 ?

Posted on June 24, 2014 by Martin Armstrong

QUESTION: Hi Martin

Given the cycle work that you do, it appears that Gold had a 12 year Bull Market Cycle from 1968 to 1980 followed by a 19 year (one metonic cycle) bear market, followed by a 12 year Bull Market from 1999 to 2011. Does that mean we have entered another 19 year Bear Market Cycle?

Thanks,

A

ANSWER: Under normal conditions that would be true. However, our problem is that we are now in a Private Wave and that means confidence will decline in government and shift to the private sector. That inverts this outcome and the eventual high in gold and private assets is more-likely-than-not going to form off in 2032. The private sector will then collapse and thereafter people will turn back to the state.