QUESTION: Martin.. I have been trading /investing for over 20 plus years.

QUESTION: You have talked about bitcoin and are rightly skeptical as we all should be, yet creative destruction rolls on. What insights do you have to share about the Dapps and Ethereum? In reading your blog for several years now you have truly opened many peoples minds. Thank you for your insight!

COMMENT: Mr. Armstrong; I live in Germany. I wanted to send my father €200 for Christmas. I had to prove where the money came from. It does seem as if there is a major gap between those trading the euro for big banks and the people. I left Romania for freedom. Everything that I fled from has seemed to follow me to the West. Those who cheer the rise of the euro seem oblivious to the reality on the street. We have no real government in place here since nobody won a majority. The clash between freedom and oppression is playing out in silence. I fear this will just explode all of a sudden as it did behind the Iron Curtain.

PB

REPLY: You are not alone. I have several Russian, Hungarian, and Ukrainian friends who all express the same concerns. The fact that you fled to freedom and then see the very aspects of government that made you flee in the first place have taken hold in the West is all part of the cycle. This is simply how Empires, Nations, and Citystates collapse. They are always the same – a constant search for more power to retain their control. Then it all snaps. That comes typically when a government can no longer feed its own workforce to keep the people in check.

Revolt of the Heraclii 608-610 AD of Carthage

Emperor Phocas (602-610) persecuted the Aristocrats (rich) seeking taxation causing capital to go into hiding and the VELOCITY of money to decline. His reign did more than any other to begin the process of a significant decline of the Byzantine Empire. His tyrannical treatment of wealth led to a rebellion that began in North Africa by the exarch of Carthage, Heraclius in 608AD, who had been a leading and respected general under the previous emperor Maurice Tiberius (582–602).

This tax rebellion that began in Carthage, spread throughout the provinces. The funds were thereby raised to put together a considerable effort under Heraclius and his son. This major effort gathered a massive fleet that sailed toward the capital Constantinople. When they reached Constantinople, the gates were opened and Phocas was handed over. He was promptly executed being abandoned, and his statue he had constructed in the Hippodrome was now publicly burned. The young Heraclius was crowned by the Patriarch and began a new dynasty as Heraclius (610-641AD). His father did NOT assume the role of co-emperor showing his motives were to simply save his nation.

What most people do not know about history is the fall of government typically comes from tax rebellions. Michael IV the Paplagonian (1034-1041AD) raised taxes excessively setting in motion the collapse in VELOCITY of money once again as people hoarded their wealth creating the essential element to the destruction of an economy as you see in Europe today. Once capital begins to hoard and hide from the government tax collectors, the beginning of the end appears. In the case of Byzantium, this was set in motion by a tax hike and aggressive tax collection. The Slav population of the Balkans rebelled against the taxation. Michael IV himself was present to put down the tax rebellion oppressing the people and pillaging what they had.

The heavy taxation had also contributed to the demise of the small landowner. Thus, the higher the tax rates, the less production took place. The Empire had begun a vicious downward economic spiral that was not understood. Isaac I, Comnenus (1057-1059) embarked on a mission to strengthen the Byzantine Empire. His fatal mistake was one of finances. The treasury was depleted. The gold coinage had been debased, and the high taxation did nothing but send the economy into a downward spiral. Unable to tax the people, they began to run out of precious metal. Isaac I now did what so many other rulers had done before him; i.e. Napoleon, Henry VIII, and all Communists. He confiscated Church property with no other option. The Patriarch protested, and Isaac had him arrested and put on trial on trumped up charges of heresy. The Patriarch died before judgment or trial, yet the people were so outraged, Isaac I was forced to abdicate and go to a monastery.

What people do not credit is the Muslim conquest of Byzantium with the fact that they had the support of most Jews and many Christians. Why? The Muslim government eliminated the abusive taxation of the Byzantine Empire that was plagued with tax rebellions all the time. The Jewish revolt against Heraclius was part of the Byzantine–Sasanian War of 602–628. This was the final attempt by Jews to gain autonomy in the Land of Israel prior to modern times.

The Chinese rating agency Dagong downgraded the US creditworthiness over the tax reform. What is really a total joke is why anyone bothers to rank any government debt whatsoever when in fact there is not a single government in the world who ever intends to pay off their debt. So why does anybody rate government debt? It is not like the USA would default. Deficits mean absolutely nothing. Obama’s first four years produced deficits that were nearly $5 trillion. Trump’s Tax Reform the Democrats claim will add $1 trillion. So why was $5 trillion OK but $1 trillion is not?

The entire rating game is a joke. Nobody will ever pay off their debts so why rate something that is impossible anyway?

QUESTION: Is the euro really going up on capital inflows or speculation leverage?

ANSWER: We are not picking up any real net capital outflows from the USA to Europe. It appears to be speculation on the currency markets in anticipation of higher interest rates coming down the line. But real capital has not begun to move and will not seriously move in until there are higher positive rates.

More concerning has been net outflows from the USA to emerging market debt. This has been a trend led by pension funds trying to earn higher yields. They need higher returns to try to cover net losses in interest income because of the lower rates. This is very dangerous for when the dollar reverses and rises into 2021, that emerging market debt will go into default. This will only further the Monetary Crisis we see coming in the 2020-2021 time period. Meanwhile, Excess Reserves at the Fed rose during 2017 up from the low in 2016. European banks have been parking cash at the Fed since 2016 to avoid the negative rates at the ECB. We need to see that rate rise at the ECB back to a positive return before the banks will return that capital.

COMMENT: Marty; I really do not know how anyone cannot recognize what you have discovered. The euro began its breakout precise on your target of the ECM on November 22 last year. You have proven beyond a doubt that there is a hidden order to everything if we care to just look.

My hat is off to you.

REPLY: Yes, the Euro broke out above the Downtrend line, then fell back to retest it on the 21st reaching 11713 when the support was 11708.  It turned back up precisely on the 22nd. These things amaze me. I try to emphasize all the time that this is not me making forecasts in so many markets. There is a hidden order that exists if we do just pay attention.

Nevertheless, on the higher up level of the ECN, that turning point was the 24th, which was that Friday. So it was a perfect fit even for the week as well.

Now, here is the Dow Jones Industrials. It too changed course and exploded after the precise target on the ECM of the week of November 24th.

Here is Crude Oil and how it responded. How markets interact at critical periods identifies the trend it will take. The whole key is to abandon personal opinion. You have to stop trying to always rationalize a move by reducing it to a single explanation

QUESTION: Mr. Armsyrong; Thank you for an eye-opening conference. Can’t wait for this year. You said 2018 was a Panic Cycle Year and that it would be unlikely to create an outside reversal in the Dow, but we should expect wild times ahead. Is this panic cycle impacting many other markets as well?

JV

ANSWER: Yes. This is the beginning of the Monetary Crisis Cycle that will go into 2021. That is probably where we will see the dollar rally break the world monetary system. This year, we should expect most markets to test BOTH sides of the game so pay attention to the Global Market Watch and the Reversals. This will tell us when the trends shift. There will be the classic fool who thinks that just because the euro finally exceed last year’s high or gold has rallied that this is it and that means the next four years will be the same.

Panic Cycles are notorious for trapping people on either the long or short side. You always have to trap the majority in order to create the slingshot to the upside of the waterfall to the downside. This is why they remain fools for they rush in based upon a few day’s price action. So far, everything is running its course. We are finally getting closer to the 125 threshold of resistance in the euro and the pound sterling has rallied with many starting to bet that BREXIT will not happen. Buying the Euro because interest rates are expected to rise with the ECB backing off of QE is just not being thought through rationally. QE has AILED to stimulate the economy after nearly 10 years, and all it has done is subsidize EU member states. Rates will rise when they start to have to sell to real buyers. Then the sentiment will shift mid-year and we will test the opposite side.

This is going to be a crazy year that seems to be divided into two trends in many markets (not all). We are going to issue the 2018 Canada Report, 2018 Gold Report, 2018 stock market report as quickly as possible. The Canda Report will be available at the Vancouver event in February. I will also be the keynote speaker this year at the Hack Miami 2018 programmer’s conference May 19-21, where I will be delivering the lecture on the future and AI Programming.

QUESTION: Reviewing the private blog, at the end of 2016 on December 31 you wrote “When it comes to the Euro, the Major Yearly Bearish Reversal lies at 10365 and the intraday low for 2016 was 10352 closing the year at 10513. This too warns that we may not be ready to meltdown just yet.” You called for the Euro rally into the German elections but it did not reach the 125 and stopped at 120. Then for the close of 2017 you wrote on the private blog: “On our Yearly Models, we have had THREE Directional Change targets all back-to-back from 2017 to 2019. From a technical perspective, we achieved an outside reversals to the upside in the Euro making 2017 the low but closing above the 2016 high. We never quite reached our target in the 125 level, so it appears we still have time to do this here in the coming New Year.” You also wrote: The year-end signals we achieve in the Euro for the closing of 2017 will be significant for the overall tone of what is to come reflecting how fast things will develop. Our models are reflecting a sharp rise in volatility in 2018 as well.”

My question is this. With three yearly directional changes from 17 to 19, I assume this means choppiness. Your volatility models show a sharp rise in 2018 as well. Do you think we can really reach the 128 or 135-140 level by March?

HS

ANSWER: In order to create the greatest amount of chaos, you always have to swing to extremes. If we are going to really create total havoc that will bring down the monetary system as we head into 2021 and force some sort of a new Bretton Woods, the only way to do that is a dollar rally. A dollar decline means sovereign debts issued by other nations in dollars will be devalued encouraging them to issue more. The way to break the system is only a dollar rally which forced Roosevelt to devalue the dollar back in 1934 and it forced the Plaza Accord in 1985 that gave birth to the G5. The US always wants a lower dollar to reduce the trade deficit. This is Trump’s policy as well. The market will NOT be that forgiving.

A rising Euro will increase the debt burden in Europe and deflation reducing exports. Ending QE by the ECB will result in rising interest rates. But that is always a bell curve. What people constantly get wrong is the classic one-dimensional analysis. They assume whatever trend is in motion will remain in motion. Rising interest rates will always at first support a currency as should be expected with the Euro short-term. However, that will be the trend provided the confidence in government remains. If confidence collapses, then suddenly the interest rates will continue to rise exponentially and the currency will collapse along with asset values.

The high in US interest rates took place in 1899, It was 1896 when J.P. Morgan had to bail out the US Treasury because they were broke. Following America gaining control of the Philippines as part of the ending of the Spanish-American War, in 1899 the Philippines declared war against the United States requiring independence from America. The war continued until 1902 when the Philippine President Emilio Aguinaldo surrendered. In 1916, the United States granted the Philippines autonomy and promised eventual self-government, which came in 1934. In 1946, following World War II, the Philippines was granted full independence. The fact that the USA was at war with Spain led to questions of its ability to cover its finances. The USA nearly doubled the output of $20 gold coins during 1898 and 1899 to pay for expenses of the war. When confidence declined, this is when we see the highest levels of interest rates.

This is what will happen in Europe. It is all depending upon the fleeting whims of confidence. Only a complete fool thinks that a trend set for a few days will continue forever. Nevertheless, the first level is the technical resistance just below 124. Then we have 125 and 12890. These remain possible and will help to create the impression the euro will rally and the dollar will collapse. That will suck everyone in and then you have the stage set for the slingshot in the opposite direction.

We should see the flurry build once the Downtrend Line is exceeded. Then you will hear the big sucking sound bringing in all the dollar haters and we then set the stage for crazier choppy trends.

This is NOT going to be an easy people between 2018 and 2021. So hang on to your socks. This will be a very interesting time. The key is to survive it.

QUESTION: Mr. Armstrong; You have been calling for the dollar to decline against the Euro and it should test the 125 level. Do you see the dollar continuing to decline which then breaks the back of Europe with deflation and then everything flips?

WK

ANSWER: Last year was an outside reversal to the upside meaning it made a new low since 2008 reaching 10341 and then closed above the 2016 high. That confirmed we should see a lower dollar in 2018 and our target in the 125 level has been slow in coming. There is no reversal of fortune without a closing above 140. Our minimum target was 12570 with the next forming at 12890. Thereafter, we reach the major resistance in the 135-140 zone. The technical resistance begins just shy of 124.

The Euro is rallying because the ECB is seen to be abandoning its QE program which has failed. The rush to the Euro is the assumption that with higher rates, at last money will come home. We still have a minefield of political issues. Creditors are dissatisfied with the lack of austerity in Greece as well as Italy. Our critical turning point remains March 2018.

The crisis yet to unfold is will there be buyers of European debt to take up what the ECB has been buying? This is part of our forecast with rising rates and the more they rise the worse the budget will get. There is just no way out of this crisis without serious reform. So people rushing into the Euro thinking this is a turn-around long-term for the dollar will be shown that the old saying fools rush in where wise men never go will be carved in stone.

So for now, we still await the test of 125-128.