QUESTION: Numerous people have asked:

Does the FED actually also see these trends coming (strong US dollar, bond crash) ?
K.

ANSWER: Yes. The Fed has sent people to the major banking houses and told them outright that their models are wrong. They have been telling them quietly that there may not be a rush to quality being bonds. Moreover, the selling of US Treasuries by some central banks has been an effort to try to prevent the dollar from rising. China’s holding of US Treasuries has declined to its lowest level in several years, but it is having little effect causing markets to simply coil.

QUESTION: Marty; You said at the Berlin Conference that failure is not the opposite of success. It is part of success. I found this intriguing. Is this part of the training sessions for this year’s WEC?

ANSWER: Yes. The way we learn is by making mistakes. If you claim to have never been wrong, then you have never learned anything. Mistakes are part of life as they are in trading. The trick is to survive your mistakes to make it to the next round. There is no such thing as failure — only learning lessons. This is why I also say we must crash and burn. It is impossible to argue to governments that they will fail as long as they have the power to try to defend themselves. Only a crash and burn provides an opportunity for change to emerge. This applies in politics as well as trading.

QUESTION: Hi Martin
I am a follower of your blog.
I have a question on your post “Financial Capital of the World & Its Migration” dated 30th sep 2016.
I was looking at the graph where Y-axis indicates the scale of Economic Progress (in terms of % of world GDP) against time on X-axis.
The decline of China and India have been like a jump off the cliff. Why is it that it is not so in case of Europe?
I am guessing some component of your model is able to hold it up .Could you pls explain.
Again many thanks for your education.
AB

ANSWER: The reason for this is that we have treated Europe as a whole. The devil is always in the detail. The beginnings of the Portuguese Empire can be traced to July 25, 1415, when the Portuguese Armada set sail for the rich Islamic trading center of Ceuta in North Africa. The economy of Portugal was centered in trade, raw materials, and related activities within its vast colonial possessions, mainly in Asia (spices, silk, dyes, porcelain and gems), Africa (ivory, timber, oil and diamonds), and South America (sugar cane, dyes, woods and gold). The country, with a transcontinental empire with plenty of natural resources and vast unexploited areas, was among the most powerful nations in the world. Spain really became a country only in 1492 with the merger of two crowns by the marriage of Ferdinand and Isabella.

From 1580 to 1640, the crown of Spain was also the ruler of the Portuguese Empire and its wealth. This was accomplished through a dynastic union referred to as the Iberian Union. The Iberian Union opened to both countries a worldwide span of control. Portugal dominated the African and Asian coasts surrounding the Indian Ocean, while Spain held the Pacific Ocean and both sides of Central and South America. Therefore, Spain then displaced Portugal as the financial capitol of the world.

The Spanish Inquisition led to the flight of the Jews to the Netherlands. They took with them the accounting and trading skills. This is why Amsterdam became the financial capitol of the world, equipped with the first bank as well as insurance. This is where the modern financial markets actually began to take shape.

The English Civil War and the hatred of the Pope and Catholics led them to invite William of Orange to become King of England. He brought the Dutch way of doing finance to Britain in 1688, and that began the process of shifting the capitol to London. That lasted until 1914, when it passed to the United States following World War I.

QUESTION: Hello Martin and thank you for all your fascinating and informative emails.
I’m probably naive and unrealistic (if everything goes in cycles maybe it’s just the way of the World) but I just read your email about Sears and felt pretty sad to see something that survived well for a long time and provided so many with jobs and goods for so long seem doomed.
Do you ever feel like that and can’t you help such companies? Would they even listen? Should you help them or is this just something we all have to accept is a natural demise?
Love to your mum too and a belated happy birthday to her. She is a star. It’s lovely to see you’re close and she looks so good. You must be taking good care of each other,

CP

ANSWER: I have been called into many board meetings over the years. I have watched this process first hand. Typically, companies must simply die just like any biological entity. I began my computer engineering training at RCA (Radio Corporation of America).

In 1901, the Victor Talking Machine Company was formed. In 1919, RCA was incorporated to control US patents of General Electric, AT&T, Westinghouse, United Fruit. The same year, David Sarnoff became the General Manager of RCA. In 1926, NBC established by RCA (50%), GE (30%), and Westinghouse (20%).

Meanwhile, the Victor Talking Machine Company of Japan, was founded in 1927, as a wholly owned subsidiary of the Victor Talking Machine Company of the the USA. Its purpose was to manufacture and market phonographs in Japan. The Japanese Victor Company (JVC) sold minority shareholdings to the Mitsubishi and Sumitomo financial groups. JVC was thereafter operated as a U.S.-Japanese joint venture. However, Victor was purchased in 1929 by the Radio Corporation of America and renamed RCA Victor. RCA bought Victor Talking Machine for US$154m going into the top of the bull market in 1929. As the Great Depression began, the government began anti-trust investigations of RCA during 1930, which was followed by General Electric and Westinghouse selling their stakes in RCA in 1932. Then in 1941, the Federal Communications Commission Report on Chain Broadcasting recommended that RCA dispose of one of its networks.

From 1965 onward, RCA sought to become a major conglomerate. In 1965, RCA bought Random House, and then two years later in 1967, RCA bought Hertz Rent-a-Car. Then in 1969, RCA bought Cushman & Wakefield followed by FM Stamper, renamed Banquet Foods, in 1970. Then in 1973, it purchased Ballantine Books, once again going into the peak of the market in 1974.

With the Crash of 1974 and the sharp economic decline into 1976, RCA sold in 1976 Cushman & Wakefield to Rockefeller Group. Its fortunes had peaked with the bottom in book value of the Dow Jones Industrials, which took place in 1977, which is precisely a 51.6-year cycle wave from its birth in 1926. In 1980, RCA then sold Random House to Advance and Banquet Foods to ConAgra and turned around and bought CIT financial group. Then in 1984, RCA sold CIT to Manufacturers Hanover Bank for US$1.5bn. Then in 1986 RCA-Victor (RCA’s music arm) was sold to Bertelsmann and the following year Thomson bought RCA’s consumer electronics operations. General Electric acquired RCA in 1986 since it owned NBC and it sold off all its remaining operations. Its total life from inception was 67 years. From its peak in 1977, the fall was just 8.6 years.

The life cycle of corporations are very much like a biological lifeform, as is the case with governments. The inventor has the creativity. That breathes life into the entity. When that person dies or is forced out, like Steve Jobs, the company tries to be “institutional” and proper. The board is then run by the lawyers and bean counters. They lack creativity. They will then move into the acquisition phase and buy startups and other companies to expand their business. They lack the genius of creativity. They will typically buy the high and sell the low like everyone else because they act based upon the immediate trend. This leads to over-expansion and then comes the decline and fall.

Can such companies be saved? Only if the board listens. They typically will not since they lack creativity and any comprehension of the business cycle. They can rarely make the leap forward for they are always chained to the past and what they think is the proper way to run a company, which is always wrong.

QUESTION: Marty; I won a bet against a goldbug. He bet gold would soar and the dollar would crash October 1st because of the SDR and said you would be exposed as a fraud. I won the $100 bet. I tried to bet an ounce of gold, but he would do that.

I too studied Latin. Remember Julius Caesar your favorite: Fere libenter homines, id quod volunt, credunt – People almost always willingly believe what you want (De Bello Gallico, III, 18). That is their whole problem. They want something so bad they are blind to everything around them. You can lead a horse to water, but you cannot make him drink.

With gold down at 1275, when is your next video update?

CB

ANSWER: Yes I admired Caesar. But he forgave his enemies and they killed him for his generosity.

You cannot enlighten certain people because they have too much invested in their beliefs. There are people who will vote for Hillary no matter what as there are people who will vote Republican no matter what. There is always those who just believe and never question.

I will update a video soon. The timing is not right for gold to break out. It failed to elect the Monthly Bullish and then failed to elect the Quarterly Bullish Reversal despite the fact it was much lower. Gold rallied right to that reversal and bounced off. That was the kiss of death.

People are still uncertain about the future. They have no idea which way to go with this year from Political Hell. Will do a Private Blog Update for tomorrow.