QUESTION: Mr. Armstrong; I attended your 1992 Zurich Institutional Seminar when the Swiss Market Index was trading just below 200. You gave your projection for the high in 2007 would be 9500.0. We sold that high at the bank and the market peaked at 9548.1. The market rallied back to 9537.9 in 2015 and we sold it again. I left the bank as you know and have retired with your turn in 2015. You have always said that if a market knocks on the door 3 times, it is going to go through. My question is, do you think this will hold true in Switzerland?

Keep up the excellent work. The world really needs you.

ABR

ANSWER: Yes. The next resistance target will be 11000-11200 level if we break through the 2007 high. Enjoy your retirement. Of course we never really stop thinking about the markets and the world. I suppose it is a curse of the trade.

As far as “The world really needs” me; that’s what I am afraid of. Getting drafted at my age is not exactly my idea of retirement. So I hope you are wrong on that forecast.

Good fortune.

It is very interesting how the 2017.9 (Nov 24/25) turning point on the Economic Confidence Model has marked a most astonishing political event. The House passed their version of the Trump Tax Reform on Thursday, November 16th, 2017 just 8 days before the ECM target. Then on November 29th, 2017, the Senate passed a procedural vote on the Trump Tax Reform bill that allowed debate to begin on the measure with a final vote which came on Saturday, December 2nd, 2017, which was 8 days after the ECM turning point making it the dead center between the two votes.

People have asked me constantly how in the world did I ever discover such a model that has worked amazingly? I have written before how I discovered this list of panics while doing research in the Princeton University Firestone Library. The time span was 224 years and the number of events was 26. I sought to simply see what the average was and that came out to be 8.61538461538. I had absolutely no idea how significant that number would prove to be.

As I observed this cycle, I was blown away by how accurate it had been. It was even accurate to the very day. That to me seemed very unlikely and strange. At first, I believed it was just a stroke of luck – a coincidence. But the more I observed the repetition to the day was taking place around the globe. The number of days in an 8.6-year cycle was 3,141 which was Pi (x 1000). That, of course, was the perfect cycle.

I will be republishing my work on this astonishing discovery. For now, the amazing regularity of this model is simply there for all of us to observe and wonder at the regularity of the world around us.

QUESTION: Hello. You mentioned that the tax cut will allow many companies to expand and hire more staff. At a WSJ forum, Gary Cohen asked a group of CEO’s if they would expand or hire more workers with the corporate tax cut and less than a dozen raised their hands. Some have commented that the savings will be used for stock buybacks and bigger bonuses instead. Which do you think will happen?

Thank you for your blog, it is very helpful.

JS

ANSWER: The businesses that Cohen put that question to were big public business. The big public businesses only employ about 38% of the private sector workforce while small businesses employ 53% of the workforce. Indeed, over 99% of employing organizations are small businesses and more than 95% of these businesses have fewer than 10 employees.

I have probably advised more of the biggest corporations in the world than anyone. The bigger the business grows, the more it becomes like government. The boards are taken over by lawyers, accountants, and political tokens. The original entrepreneurs are usually expelled from boards because they are far too innovative than corporate America.

I had a front-row seat in Radio Corporation of America, where I began my career in computer engineering (software & hardware). Most people are unaware that RCA was a leader in computers. The board of directors thought the computer would be like the radio, which made the company. Everyone during the Great Depression wanted a radio to listen to FDR’s Fireside Chats. Then, RCA had all the government contracts for World War II.

By the 1960s, RCA had the main-frames tied up. They had installed their machines around the world in government installations. They wanted me to go to the most remote outpost and the tour of duty was 1-year and one-day. Thule was top secret back then. The location was the frigid northwestern coast of Greenland and was the U.S. military’s most isolated base. This was the home to one of the Pentagon’s primary tools for keeping an eye out for intercontinental ballistic missile launches from Russia. I turned down the post and that ended my career in computers at RCA.

RCA sold its computer division to IBM and Univac. They kept the servicing contracts of these big installations. However, they thought the computer would decline in price like the radio into crystal sets so they believed they were being smart and sold what they thought was the peak. RCA is now just a subsidiary and no longer a leader in the computer sector. Oh, how the mighty fall.

Why do big companies buy small start-ups? Because the bigger the company becomes, the less innovation they possess. They have to go out and buy start-up to expand. All expansion of technology comes from the bottom moving up. It does not come in the other direction.

The big companies will bring back their cash and some will take-over small companies. Others will use the cash to buy back their stock. It is also like funds management. Give me $100 million and it is easy to produce 50%+ returns annually. Give me $10 billion, the sheer size cannot be traded efficiently as a small amount of money and performance will collapse to a normal level and sometimes 5-8%.

Small companies do the bulk of the hiring, while the big companies contract and impose all sorts of restrictions. The economic growth comes predominantly from small business – not big corporates. So the response Cohen got is absolutely normal. The big contract and the small are the entrepreneurs.

The Tory Rebels in the UK Parliament joined forces with Labour and the Remain Camp to defeat BREXIT in reality. They claim that Parliament will now vote on the BREXIT deal, but in reality, they have created an open door for more uncertainty and economic chaos.

The Tory rebels were Mr. Grieve, Heidi Allen, Ken Clarke, Jonathan Djanogly, Stephen Hammond, Sir Oliver Heald, Nicky Morgan, Bob Neill, Antoinette Sandbach, Anna Soubry and Sarah Wollaston. Another Conservative MP, John Stevenson, abstained from voting in both lobbies. Meanwhile, two Labour MPs, Frank Field, and Kate Hoey voted with the government.

The amendment was authored by former attorney general Dominic Grieve and was championed by other pro-Remain campaigners. The fact that the Remain camp indeed remains delusional about the economics of the entire mess is beyond contemplation. This seriously calls into question why there is no qualification to be a politician. They are ignorant of the fact that the GDP of Britain peaked in 1973 and has declined ever since joining the EU. Are they just stupid or corrupt? Britain is disliked in Brussels and has lost just about every case to defend Britains in the EU Court. Yet these people are oblivious to reality.

Nicky Morgan revealed their true motives when he tweeted:

“Tonight Parliament took control of the EU Withdrawal process.”

These Rebels have seriously undermined the process and the Prime Minister. Granted, PM May does not know how to negotiate. Britain holds all the cards. It should go for a HARD BREXIT and watch Ireland and Brussels crawl. The Germans will be on the phone to Brussels calling them an idiot since Britain is Germany’s biggest market for their cars. Already German cars sales in Britain have dropped sharply and diesel cars have become almost not salable.

Meanwhile, the cash Pound closed last week at 13323 leaving it neutral to bearish on our yearly models for now. As we enter 2018, the resistance will fall to the 145 to 151 level. The Pound Sterling thus still remains in a vulnerable position against the dollar.

Looking at the Pound against the Euro, it closed last week at 88200. The Yearly Bearish Reversal rests at the 82800 level. Our pivot point for resistance in 2018 will be 88120. This makes this very interesting. A closing above that means the Euro can still rally to exceed the 2016 high of 94150. A closing beneath 88120 will be a sign of weakness for the Euro and BREXIT will still unfold.

Support will be at 78800 in 2018 and resistance will stand at the 93100 level and that appears to be very firm.

QUESTION: I read your article on Bitcoin. I found it fascinating that defining what it is changes everything. You did not actually say what you thought it was, money, stock, or a commodity. Curious as to what you would classify Bitcoin as.

All the best

ANSWER: The definitions I presented are from the government perspective of taxation. They will naturally define it to be whatever produces the greatest tax for themselves.

Economically speaking, anything that can be exchanged to facilitate a barter transaction becomes a MEDIUM OF EXCHANGE. That really can be anything. It has been food, sheepskins, seashells, cattle, bronze, silver, gold, or a derivative of something as paper money began.

Pictured here is a bronze ingot of the Minoan society. It is bronze cast in the form of a sheepskin. This reflects the transition from sheepskin to the Bronze Age. Above is a Roman ingot with the picture of a bull, which also reflects that this was a transition for cattle that was money previously.

Cryptocurrency is the next transition from tangible items being used for money moving toward electronic. It is a Medium of Exchange and that makes it really a currency and not the object itself of desire. Money will always exist in different forms because humans are not all equal in motivation, only human rights and that depends if the government has something to gain then you have no rights at all at that moment.

Trying to actually use Bitcoin in the economy is anything but something that will replace any government currency. The transaction fees are outrageous typically 3 to 4 times that of a cash withdraw from an ATM. In this video, a journalist tries to actually use Bitcoin. The pizza ends up costing him $76.16 and the fee to use Bitcoin is $9.47.

To use Bitcoin, there are middlemen who are the equivalent of a foreign exchange broker. It can take hours to get a simple order in to buy a pizza.

From a practical viewpoint, cryptocurrencies are not quite ready for prime time. They are all hype and offering a futuristic vision of beating the governments, but the computing time it takes to actually use cryptocurrency and the complexities, demonstrate that what we are dealing with is by no means some instant success story that has beaten paper currency or a credit card, which is really also electronic money.