Get Ready For War The Dow Jones – Turning Down ?

Posted on August 27, 2013 by Martin Armstrong

The US share market should have bottomed Friday/Monday. Instead, we inverted and made a meager high. This is not good at all. This warns we may see a test of the bottom of that channel next week or as late as the week of October 7th.

Everything is indicating Obama may start a war attacking Syria BEFORE Congress returns. September has been a major target this year all along. The fundamentals keep increasing for this target. We began with the German elections. Then we added the Debt Ceiling issue. But there is something even more serious why Obama needs a war and the mainstream press is lined up goose-stepping to whatever the Obama Administration dictates.

The Treasury has extraordinary powers and even Congress member and staff have a Thrift Plan that is like a 401K but government is the trustee. They have been taking funds from that to stay under the debt ceiling. This is the second time they have done that. But come October, they run out of everything.

With the fear that the conservative will not raise the debt ceiling, Obama needs a war to prevent a default. The easy way to do this is act when they are out of session so when they come back they are boxed in by the mainstream press to fund whatever.

Parliament in UK is generally also not around during August. The gulf war began August 2nd, 1990. World War I began 28th July 1914. World War II began September 1st, 1939. The Korean War began early on June 25th, 1950. The Gulf of Tonkin incident (or the USS Maddox incident) took place also on August 2nd, 1964. While December may be the season to be jolly, August is notorious for starting wars.

We have a Directional Change this week with a key Weekly Bearish Reversal at 14805 and 14450. A closing below the latter will warn we may see that postponement. Keep in mind, that Europe needs a war as well not just for the German elections, but to employ the youth and divert them from the economic collapse. It appears that any escalation of the war would come in November 2014.

The evidence has shown that government often sacrifices troops to enrage the people to increase their power. During World War II, they let troops die knowing the Japanese would attack since they broke their code. But to save the troops would gave revealed the had the code. We are normally collateral damage. It is their edge that counts -always.

Capital Flows – The 4.3 Year Directional Change & Sovereign Debt Crisis

 

Posted on August 27, 2013 by Martin Armstrong

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QUESTION: I have been following your articles but I am confused by your latest few articles. Previously you were mentioning that there will be a flight to quality as US has the largest debt market in the world. You also mentioned that this flight of quality will worsen the debt crisis in US into 2015.75. However, your recent articles seem to suggest that there is now no flight to quality but shift to private debt instead. If so, does that mean the sovereign debt crisis will not worsen yet but delay into 2025 instead? If capital is going into private debt, does that mean that economy will recover and grow then?
ANSWER: There are two flight-to-quality.

(1) First you have the natural domestic cyclical flow back and forth between the PUBLIC and the PRIVATE sectors. After the 1929 Crash of the Private Wave, capital turned to government and stocks do poorly and sovereign bonds do well. When the wave turned in 1985, the Dow exploded and the market rallied from 1,000 to so far almost 16,000.

(2) There are also international capital flows. Capital flees economic and geopolitical turmoil. When the G5 was formed in 1985, they chased the capital concentration out of the USA culminating in the 1987 Crash and it turned into Japan causing the bubble there for 1989. Then capital flows poured into South East Asia and that bubble burst 1994 as capital then turned back to the USA (moderately) and into Russia. When Russia broke in 1998 with Long-Term Capital Management, it the flowed into Europe for the Euro. Capital then flowed into the USA for the DOT.COM bubble 2000, which crashed into 2002. Then it poured into Mortgages for the next 4.3 years and that bubble burst in 2007. It then flew into gold and that peaked in 2011. Then it moved back to the Dow and is shifting away from government bonds. That should peak in 4.3 years or 2015.75. The capital flows change direction every 4.3 years.

So the flight-to-quality is away from long-term debt keeping it short-term and into the US private sector as capital concentrates. Just follow the money both domestically and internationally.
Regarding the Sovereign Debt Crisis, it can be postponed due to war that distracts people from what government has done. This is possible and it seems like the powers in Washington want to invade Syria. However, Russia will be an adversary and they will risk war with Russia telling themselves Putin is wrong. But it will be Washington who starts the war – not Russia. Putin is responding to the rising aggression of the USA and that seems to be geared at confusing the whole issue of the Sovereign Debt Crisis.

During World War II, the Fed was ordered to support the bonds at par. That was lifted in 1951 and that is when the bonds started their free-fall. These people KNOW they have a debt crisis, and that is why they are arming Homeland Security against a domestic uprising. Yet they continue to raise taxes killing the economy. They will destroy the world before giving up any power willingly. I have stated they will NEVER go quietly into the night or the light – they will kick and scream all the way.
The best way to buy time is to create a diversion. That they are experienced at. We must respect they can create a postponement for the war cycle turns up in 2014. So unfortunately the timing allows them to do that. This Private Wave does not end until 2032 so sadly they do have the time. But keep in mind that this wave began 1985.65 and the major focal point will be 31.4 years into it or 2017.05 (January). That should be the most they can postpone the start of this Sovereign Debt Crisis with the maximum culmination being 2025 and the optimal being 2020. They will lose. There is no question about that. They may trash the world in the process. You cannot imagine the hatred some of these people have gleaming in their eyes. They trust nobody. As a result – they will do outrageous things under the pretense their adversary intends the same if not much worse. They are fighting shadows in their own mind.

US Real Estate

Real Estate

Posted on August 25, 2013 by Martin Armstrong

QUESTION: “Hi Mr. Armstrong, You mentioned before that real estate will decline from 2015.75 and will continue for over 10 years.  Do you still feel that way and why? Thanks,”

ANSWER: Real Estate is a strikingly different animal. The 30-year mortgage was created by FDR to try to restore the value of real estate. Our problem today is people will be less and less inclined to lend for 30 years due to uncertainty as this cycle moves forward. Fund managers who are still inside the box will but that stuff all day long until they lose your shirt.

The real estate that has been coming back are high-end in New York City and selected places in Florida for example. But this is being driven by foreign capital inflows. Lots of Europeans are buying in the USA right now to hedge against the banks and the euro. They are trying to keep assets out of the country and the banking system.

Places like Detroit and the lower income will not recover much and will turn down again. The lower the income area the hard it is to sell property. The high end is acting like a hedge at this time. That will survive and may rise sharply into 2015.75. The downside will be purely one of liquidity. Cash always rises in purchasing power during economic declines.However, we are not likely to see the traditional flight to quality. Expect cash to go to corporate bonds more so than real estate after 2015.75. There is likely to be a crisis in government debt at the state and local level that infects the national level as well. As shown here, there was a reduction in the flight to quality after the 1931 Sovereign Debt Crisis as corporate yields declined in a premium over federal issues. This is what we see coming ahead. The quality will more and more emerge on the private side.

Can the Dow Rally with Declining Bank Stocks – ABSOLUTELY!

 

Posted on August 24, 2013 by Martin Armstrong

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QUESTION: “how can you possibly align staying away from bank stocks at the same time thinking there is a possibility the dow doubles in the next 2 years….NO CHANCE both of those happen (in my humble opinion)…ZERO….would love a scenario laid out, however, that big banks would flounder while the rest of the markets rip to the upside…..would be interesting reading …thx.”

ANSWER: Just because the Dow rises, it does not mean that every sector rises. In 2000 it was the Dot.COM rally that was the focus. During 1907 it was the Railroad stocks. During 1929 it was the industrials led by Autos. Every rally is different despite the fact that the market rises overall. The bank stocks will NOT be the high flyers.
Look closely at the events during the 1929 bull market as the Dow was making new highs, some stocks were collapsing including all the commodities. Look at Homestake. It began to break out only in 1931 when things were crashing. Homestake was not making new highs with the market in 1929 because commodities peaked in 1919 and began a 13 year bear market. The Dow can rally like it did into 1929, but the bank stocks will not any more than the commodities did. Homestake rallied only when the 1931 Sovereign Debt Crisis began.
The bank stocks will NOT be seen as a safe alternative. That has nothing to do with the market overall nor will it prevent capital from shifting. Facts are facts. Opinions everybody has one. Big deal. My opinion; we will not reach the Mad Max event. But that is a personal hope. We may blow everybody up before then anyway.

The Fire is Burning – We Need More Fuel

 

Posted on August 24, 2013 by Martin Armstrong

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QUESTION: “Hi Mr. Armstrong,  
I am curious. I take it that you feel the DOW may double into 2015. Yet the SPX looks like it may roll over and crash. Does what you say about the DJIA equate equally with the S&P 500, or are they going to diverge and one goes up, while the other crashes?
thanks,”

ANSWER: Do not confuse long-term and short-term. The market was due for a correction and that may continue into September. The depth of the decline is important. That will determine what we get into 2015.75.
The Dow has the possibility to double into that target. However, to see that, we have to see capital concentrate in the US both from Europe and Asia. Capital is pouring out of the emerging markets. Brazil, India, and China that looked so good are now moving opposite. The Bail-In policy in Europe could send a massive tidal Wave of capital into US equities because you cannot trust the banks. If that happens, the Fed will raise interest rates attracting more capital to the dollar and the bonds crash with the budget deficit rising. That will set the tone for a dramatic expansion in debt and that is the catalyst for the Sovereign Debt Crisis. This is a game of dominoes. One is necessary to push the over the next one.
Those talking about hyperinflation are missing the point that with taxes rising, low interest rates and the deficit declining, where is this wave of massive spending coming from? We need to send the system into its debt spiral for as that happens then the unfunded liability will get bigger. This is a fire burning. It needs some more fuel. Then you will see the commodity rally. But right now, the decline in commodity prices shuts down supply. That is necessary to create the next rally – it is called shortage.

Gold – The Coming Slingshot Move

 Posted on August 23, 2013 by Martin Armstrong

QUESTION: You were correct and gold collapsed into June when the gold promoters kept saying buy. Was the low in June sufficient for the major low? Do we still need to see $950?

ANSWER: Markets must move to extremes on both sides to provide the ENERGY for the move in the opposite direction. The further gold would decline, the further it will rally. This is what creates the energy. The MINIMUM targets I provided were 1) mid $1100 range and 2) June 2013. We have met that criteria.

So does this mean gold will rally from here? No, The biggest target in time is January 2014. If January were a high at the $1421 level, then we are probably looking for that final low in the months beyond. A January 2014 high would warn that we could see the worse case scenario being the $950 with the furthest time target December 2015/January 2016. A January 2014 new low  would have the potential for the final low. However, you must understand that capital is nearsighted. It focuses largely on one thing at a time. You cannot look at just gold for the answer. This is a dynamic collective economy and everything must be lined up.
Please understand. This is not my OPINION nor is it based upon what I “think” will happen. That is really irrelevant. We all have “opinions”. The important aspect is that you understand HOW markets move so you participate in everything instead of waiting for just a single event. There are no singeltons in life. It is what it is – never what it might have been, could have been, or should have been.

The bubble top in the Nikkei for 1989 began from this same turning point 1987.8 and culminated in 1989.95. You see the sharp crash there in late 1987.The Nikkei about doubles in this short period of time. So what we are looking at here with a possible capital concentration in the US share market that could double by 2015.75 is not unusual. This can push the dollar higher and that will be negative for gold. Private assets rise and gold will follow the Dow Jones when capital is fleeing domestically from the Public to the Private sector, That is the pattern in the Germany hyperinflation period as well – all tangible assets rise. Those preaching the Dow will collapse by 90% and gold will rise do not even understand history. That is possible when gold is the official money but money rises when their is a lack of confidence in the Private sector – not the Public as we have with the Sovereign Debt Crisis. If stocks collapsed, then the bonds will rally. That is the Great Depression and the fundamentals were different. That is was gave birth to socialism. Today it is the socialism that is collapsing. Those who claim there will be hyperinflation and the Dow will crash are insane. If that were the case with hyperinflation, everything rises stocks, real estate, and commodities.

These analysts are fixed on one relationship and the markets are dynamic. They do not follow one relationship perpetually. Domestically capital flows between Public and Private and within the Private from sector to sector. Internationally, Capital flows can be measured by taking the Capital Account and subtracting the Current Account. If the capital is pouring into the USA from 1) emerging markets, 2) Japan, and 3) Europe, then we end up with the same conditions for a bubble top in the USA going into 2015.75.
Swinging a market to the extreme in one direction will then swing it further in the opposite direction. That creates the energy and it is why the majority must always be WRONG! Then if we have the failure for the FLIGHT TO QUALITY with capital rushing into government paper, that is the condition necessary to send gold up and through the $2300 level that is the 1980 high adjusted for inflation.
Those preaching the collapse in the Dow now to 10 cents on the dollar are insane. To do that now send bonds up when there is no widespread sovereign debt crisis that the public sees. Such a pattern simply cannot happen without everything lined up.

No Single Investment will Ever be Perpetual

No Single Investment will Ever be Perpetual – It all changes

Posted on August 22, 2013 by Martin Armstrong

QUESTION: You compare gold and the Dow in 1980 and today. Are you saying stocks are better or are you referring to the difference in timing?

ANSWER: There are cyclical periods for each and every aspect of investment. I talk about the gold promoters because they mislead people and tell them only gold will survive. That is not true. Capital moves from sector to sector. The Panic of 1907 was focused on the Railroads. Then the Panic of 1919 was commodities, which was followed by the Industrials for the Panic of 1929.

Silver peaked in 1919 and then fell into 1932 – 13 year decline. The commodities ended up bottoming with the stock market in 1932 for the Great Depression. Then the rally move into the bond market as we entered a Public Wave.

The next Crash was that of 1937, which was only 12 months, but it was scary. Most people assumed it would be a repeat of the Great Depression.

The bonds peaked in 1950 and then began a 31.4 year decline into 1981. This led to the rise in the dollar as capital was buying US debt at insane levels of interest rates. The British pound fell to $1.03 in 1985.

The commodities began to rise from the 1932 low. Guess what? Adding the Pi Cycle of 31.4 years brings us to the last year silver appeared in coinage – 1964.

The 1966 Crash was focused in the mutual fund sector because funds at that time were listed and people bid them up far beyond their asset worth.

Nixon closed the Gold window giving birth to the floating exchange rate system on August 15th, 1971. That was. 37.104 years after the dollar devaluation and confiscation of gold in 1934 (8.615 * 4.307)..

Then we have the Crash of 1974. This unfolded when foreign capital began to sell the dollar fearing it would collapse. This came 37 years after the 1937 event (8.6 * 4.3).

1980 we have the peak in commodities. 1981 we have the low in bonds peak in rates. 1985 we have Plaza Accord. 1987 the Crash dollar driven event that sent the dollar down 40% and capital fleeing into Japan creating the 1989 Bubble Top. As Japan peaked, capital then fled to South East Asia where it peaked in 1994 with the simultaneous low in the US Dow Jones. That lead to a tempt high July 20th 1998 in US stocks and the 1998 the peak in Russia and the collapse of Long-term Capital Management creating the first Fed bailout of a hedge fund to save the banks. Capital then flees into the US .COM stocks creating the Bubble in 2000 with the low in 2003. Then we rally into 2007 with the Mortgage Bubble and the collapse into 2008-2009. Then we have the rally to new highs in the US share market that nobody believes. The list goes on and on.

The key here is that this is like lightening. It never strikes twice in the same place. Each bubble involves something different. Therefore, preaching any single investment is the alpha-omega is wrong, can cost a fortune, and in the end you may lose your shirt. One thing you can bank on – when any market reaches a bubble, move on for that is what capital will do. Never stay there expecting new highs. Sorry. It is over. You have to wait for the next cycle.

So my only problem with the gold promoters is that they are no different than a bond salesman. Each have their pitch but downgrade any alternative. There is no single investment that will ever perpetually rise. Gold will rise, but only when the timing is correct. Gold rallied for 13 years. It was time for a correction. Sorry – that is the way markets trade. Live and learn – or die waiting for the next cycle.