Dow & the Euro


Our Capital Flow models have been spot on showing the strength of the rally in the Dow is driven by foreign inflows. We have moved right up to the Weekly Bullish Reversal in the Dow in Euro Terms. If we elect this today, expect a sharp rally to test the top of the channel we have been pointing out and our ideal number in the 23,000 zone.

Welcome to the Vertical Market. This is like a party where everyone is drunk, nobody is having a good time, and they just can’t remember exactly how they ended up here.

The crisis building in Europe is having a profound impact as real money starts to move.

October 19th – 30 Year Anniversary 1987 Crash


COMMENT: 30 years ago today I was sitting in a brokerage firm in New Castle Pennsylvania on a personal computer that had 720 K of RAM and ran at 1 GHz watching the market and sitting looking at the charting. Prices on stocks were running between 15 and 30 minutes late, nobody knew what was going on. All we knew was things were dropping, dropping, dropping and dropping, everyone was confused. It was crazy. The volume was bigger than they’d ever seen before. Therefore, they could not keep up with the bids and the ask.

I was short the market with every penny I owned and I had no idea how well I was doing. We tried calling places to get current prices if you could get through and even if you did they did not have current quotes, it was pure chaos. When the dust cleared at the end of the day the brokerage firm I was with had gone bankrupt and had lost most everybody’s money.

I had bought a ton of OEX puts and the person who owned the firm. Instead of processing them through regular channels, he decided to write against me on his own. He did not have the money to cover them. I was right on the market but wrong about who I placed my bids through. Three days later all the brokers at this firm were laid off, fired or let go… however you want to put it…. the friend who had the PC and the stock charts. I helped him move all the stuff out to his house. The next year he started his own brokerage firm.

The interesting thing is 5 to 10 days before that drop I told everybody we were in for a major crash but nobody wanted to believe me. But it was in the charts and I tried to show them this.

REPLY: Welcome to the old man in the corner club. You know. The old guy in the trading room who use to say this is just like 1929 when we were kids. Now we talk about 1987 which was 30 years ago. I was giving a WEC that weekend. We just elected a set of Double Weekly Bearish Reversals. The Arrays called for a low in 2 days. There were no other reversals between 286 and 180.

I remember standing up there trying to find some technical support between 286 and 180. I could not. There was nothing between the two even technically. The audience asked me what would happen? I said look, it sounds nuts, but we should move down 10,000 basis point in two days.

I myself could not believe it. But people paid me for what the computer had to say, not my opinion.

When that happened, it was right on the ECM date. It was absolutely perfect to the T.

Everyone was calling for the 1929 collapse. The model said new highs by 1989. That’s when brokerage houses were begging me to please come and speak to their retail audiences. I agreed and went to Toronto for Midland Daugherty. They filled the place with thousands of people.

Australian brokers and British brokers were all lining up to have me speak to their clients. It was all in their self-interest. They were paying back then $100k to get me to speak to their clients because I only did Institutional. It was an interesting time.

Canada’s Hunt For Taxes Turns on Minimum Wage Earners


The hunt for taxes has turned to employees of companies. Any benefit you give an employee is considered “soft-income” and is to be taxed. In the USA, the maximum value of a gift I can hand an employee is $25. I can’t even give them a decent bottle of champagne for New Years.

In Canada, this same idea of taxing any employee benefit has gone all the way to hunting the minimum wage earners. The politicians have classified any discount an employee gets as tax-avoidance and they want their nickel and dime. A minimum wage store employee who gets a 20% discount on anything the store sells or if a waitress gets a free meal while working is to be taxed. The Income Tax Act of the Canada Revenue Agency is now targeting not the “rich” but minimum wage earners since the rich are leaving. When an employee receives any sort of a discount on merchandise or a free meal because of their employment, the value of the discount is to be included in the employee’s income and taxed.

The hunt for taxes is just going to get worse until the people rise up, as they have always done, and probably start yelling the same words: No Taxation Without Representation!” Politicians are doing the same thing that sparked the French Revolution with their arrogance when taxes reduced the standard of living and people could no longer survive. The response of the government was “let them eat cake” and that did not sit very well even if those words were not really spoken – it was the rumor attached to  Marie Antoinette

Left Opposes Lowing Taxes on Rich in France to Bring them Home


An online petition from the left in France is demanding that Macrone tell the “truth” about the tax rate the top 100 French will be taxed. They refuse to look at economics and insist that whatever wealth the rich have really belongs to them. Naturally, they have already gathered more than 10,000f French signatures demanding “truth” from their government. They want to know the plans for a far-reaching abolition of the rich tax. It does not matter that so many have left France and will not return. That is always irrelevant to the left.

Fear of Heights – Vertical Markets


The rally in the US share market has been a VERTICAL MARKET as our computer has been warning would unfold. A VERTICAL MARKET is one that takes off yet leaves the vast majority behind because they just cannot believe the rally. I have been warning that this is the most hated bull market in history. The entire bull run during the 1920s was 97 months and we passed that mark last April.

 

They wrote the book on When Genius Failed over the Long-Term Capital Management (LTCM) debacle. People who create models make one fatal mistake – they are cheap when it comes to data. They even won the Nobel Prize for the model that blew up in the LTCM debacle. Why did genius fail? Because their model was based on data only back to 1971 when the floating exchange rate system began.

Now we have the ECB vice-president Vitor Constancio warning of the dangers of new price bubbles on the markets. Nobody seems to understand this market and they never will without a database that stretches back at least a few hundred years. You simply have to see how the market reacts under all conditions, Here t6he Dow Jones Industrial Index we extended back to 1790. The computer bought the low in 2009 and has been adding to long-term positions.

Constancio is totally clueless. He has referred the task of investigating this bubble to the regulatory authorities, which he says are known specialists in this area. Of course, if they really knew what was going on they would tell him. They also have no actual trading experience so how are they going to judge what is taking place based upon personal opinion?

The ECB’s caution has its reason becaue they too fear what is going to happen when they exit from the bond program if they even can. The program has transformed from economic stimulus to a plain outright program to reduce the financing interest rates of the over-indebted Euro-States keeping them on life-support. If this support by the ECB is eliminated, the outbreak of a new debt crisis in Europe could send interest rates soaring and a collapse in confidence in government. Therein lies the crisis. Once capital figures out that it is the governments who are in trouble, it becomes Mario bar the door!

After the WEC, we will make available for $750 – How to Trade a Vertical Market

Cryptocurrencies & the Scam


There is a serious new fraud centering around Cryptocurrencies. There have been some trading platforms set up that are suddenly changing the rules in mid-game. People who have tried to sell t6hings like Monaco Card etc. on these platforms have discovered that their accounts are frozen because they do not have the money to pay people. The excuse is they need to now suddenly PROVE who they are to liquidate. The requirements are onerous and simply a DELAY tactic. These platforms are a FRAUD and should be reported to the SEC.

There was a company IGBE (International Gold Bullion Exchange) back in the early 1980s. They were offering selling gold bullion coins at the spot, which was below cost, but the catch was 90-day deferred delivery. They were actually not booking the gold and expected it to continue to decline.

Cryptocurrencies are no different from any other investment product. It is a misrepresentation that they offer an alternative to the dollar. No matter how much money one made on Bitcoin, they still have to sell it to realize that profit and how are they measuring that profit? In dollars of course.

Beware of the fraud in these trading platforms that are now suddenly freezing people’s accounts claiming security to prevent people from selling.

The ECB is now Worried Who Will Buy Government Debt if they Stop?


Mario Dragi Naples 10-3-2014

 

According to RELIABLE sources behind the curtain, the crisis in Spain led to a significant amount of selling Spanish debt to the European Central Bank (ECB) which has meanwhile swelled to 2.3 trillion Euro. There are problems now emerging in Italy and the appetite for government debt at low rates is not as strong as being portrayed. The ECB’s expansive economic stimulus package of buying government debt is NOT going to be stopped so easily. At the next ECB meeting on October 26th, the bond-buying program is most likely going to continue and at best they might claim to extend the bond purchase program with a modest reduction in volume. The ECB has not commented on this position, but there are rising concerns that member states will be unable to fund their spending without the ECB or a dramatic rise in interest rates demanded from the private sector.

The crisis building is all about how will the governments keep funding their debts?

Nonlinear Complexity – Too Much for Most People to Comprehend


QUESTION: Dear Mr. Martin Armstrong.

Good day to you Martin. I know you are a very busy man, but I still like to send you emails time to time, hoping that you may read my email and respond to me. In regards to your recent post about the theory of Non-linear intervention, I was quietly amazed at the fact that I recently had the same idea as yours.

In my math class, my teacher taught us a different way to solve quadratic equations, and it was completely done by original algebra rules, not with the formulas we used to be given in high school. My math teacher said that most teachers do not use this method other than using special case formulas because its non-linear solution and that messes up people’s brain.

Also in my Economics class, we are learning about the basics of supply and demand and here we again use the straight linear method, such as ceteris paribus. I was sincerely curious to know if that is true for everything we do.

You have shown me a clear path in every aspect of this world. But I have a question about the Euro, I too have lost so much money by just looking at the fundamentals and execute trades and now I have learned that the fundamentals do not matter the most to move the market unless its very significant incident. (is that correct?) For instance, the Euro rallied whenever there was a chance to go up, and as a person who was only looking at the fundamental side, it was very odd and frustrating for me to watch it go up, but on the other hand, the technical communities were chanting a song that EUR/USD will spike to 1.2000 and so it did. I am still a fool who cannot read the market.

Mr. Martin, can you tell me where you first looked to find answers from the market? Did you study the technical first or the history? Do you think the current Catalonian independence is a contagious incident for Europe?

I thank you for teaching us great deals all the time. It is such a headache for me to collide real knowledge from you and inexperienced knowledge from school lectures, but I live my days with such joys to tell all these stories to my parents.

Best regards.

 

ANSWER: What you are describing is what set me in the right direction. In physics, the professor said that nothing is random and then I went to economics class and they said everything is random so don’t waste your time trying to forecast it. Since economics claimed the economy was random that really meant that the government can manipulate society to create the perfect world – i.e. Marx & Keynes.

However, it was 9th grade and in history class, the teacher played Toast of New York, which was the attempt to corner the gold market in 1869. I was working part-time in a bullion coin/store back then so I knew gold was fixed at $35. How was it possible that gold was $162 in 1869? That was certainly not linear. Something was just not right.

In mathematics and physical sciences, a nonlinear system is a system in which the change of the output is not proportional to the change of the input. Therefore, nonlinear problems are of great interest to engineers, physicists, and mathematicians because most systems are inherently nonlinear in nature such as weather, climate, disease, and life itself. Nonlinear systems often appear to be chaotic, unpredictable or counterintuitive. This is beyond the imagination or understanding of the average individual. Hence, this stands in opposition to the much simpler linear system which the average individual understands. This is why most theories are based upon whatever trend is in motion will stay in motion.

The fundamental analysis fails every time because it is trying to reduce the market behavior to a linear theory of simplistic logic. If people fear banks and government, some will buy stocks, others property, and still others gold. Each will buy whatever they “feel” most comfortable with. The trend is to sell public assets and move to private, yet all will benefit.

Fundamental analysis is therefore worthless because what moves a market is “belief” not logic. That is why real traders coined the phrase: Buy the rumor but sell the news! It does not matter what the fundamentals are if the people believe something, the markets will move accordingly even when that rumor turns out to be false.

As far as the Catalonian independence becoming a contagion, it already is. We see Scotland saying they want another vote. Reunification demonstration for Brittany in France began in 2014 with the turn in the War Cycle. In France, there are demonstrations over the Brittany reunification but the Western press were told not to show it to try to prevent a contagion which is starting in Europe. We will see the same thing rise in Italy going into the May 2018 elections.

Europe’s Economic Death Spiral


QUESTION: Mr. Armstrong, you said when you were here in Berlin that the EU Commission is about as incompetent as the US Congress. You also said Macron is trying to federalize Europe as the solution Could you elaborate on that comment?

ANSWER: The EU Commission at present is composed of 28 Commissioners, who must always ensure that they are dependent on the nomination from the home country mush as American congressmen who are supposed to represent their state. Every member of the Commission, therefore, has a personal self-interest in staying in office. The complexity of regulations and initiatives often have hidden agendas that are often far too difficult to identify. One of the proposals of Macron is to reduce the Commission to just 15 eliminating state representation and the priority would then, in theory, be given to the professional competence of the candidates rather than representing member states. This would be the FEDERALIZATION of Europe and totally eliminate and democratic process. The people would have no say in changing the direction of Europe.

Macron is proposing to create European politicians. To deal with the end of a democratic process, he has suggested that these 15 commissioners be elected by all EU citizens in the longer term. He has said that with BREXIT, the British vacancies should be the first to be open to elections of all remaining Europeans in the EU. When commissioners are elected by their own politicians, then Macron argues they are not being elected by a European choice of citizens.

In fact, a smaller Commission and a Parliament he hopes would portray Europe as a whole that would forge the EU as a single government at last. This is argued would end the current paralysis that the EU is unable to get out of the economic hole it finds itself in and the ECB has failed with its stimulation to end deflation for nearly 10 years of quantitative easing

Europe suffers from extremely high taxes, taxes and social security contributions combined, which account for around 50% of the business cost which has produced nothing but higher levels of unemployment. In the US and Asia, the comparative rates are between 30% and 40%. Europe just cannot compete in the world economy and is slowly dying.

Macron wants to unify the corporation tax of all EU states or at least the Eurozone members and to make them available to an EU for infrastructure investments. Macron still fails to see that higher taxes produce lower economic growth. Until politicians wake up and see themselves are the source of the problem, there is little hope in producing meaningful economic reform anywhere in the world.After all EU countries suffer from financial distress, the plan can only lead to even more taxes being collected and not less. This also limits the scope of the holdings.

The development of the internal market is constantly being discussed because Europe cannot really compete in the world economy with a high tax burden. However, the fundamental obstacle to creating the internal market within Europe they believed would be settled with a single currency. But that has not proven to be correct as it has merely imposed austerity upon Southern Europe after forcing their past debt to be redenominated in Euro, which then doubled in real value.

Companies operating across Europe are forced to have their own accounting system for each country and act as if they were companies in the country in which they are exporting. The cost of compliance with different rules and taxes in every member state defeats the entire idea of a single currency would solve everything.

Then there is the EU going after Apple and Amazon claiming they were given unfair tax advantages by Ireland and Luxembourg sho they should pay retroactively the difference to the higher tax rate in Europe.

In addition, a complex control system was used to make larger tax evasion responsive to even the smallest billing. There is no talk about these obstacles because each state believes that the existing regulation will generate more tax revenues. A uniform value-added tax and the distribution of revenues to all Member States have been rejected by the member states.

The different VAT tax rates among member states are illustrated here. There is no uniformity. sentences are only part of the problem.

Then there is the Pension Crisis. which is setting the stage where the public sector is facing an explosion of the deficits from 2018 onward.

The reduction of the tax burden MUST be the number one priority, yet that is never addressed. The European Central Bank will not be able to maintain zero and minus interest rates forever. As a result, the states will have to pay higher interest rates on outstanding debt and new debt, which will have an explosive impact on the deficits. We are coming to the point where this system of perpetually borrowing more and more every year will be impossible to maintain once the people begin to realize Europe is in an economic death spiral.

The core problem is never addressed. All of these proposals on how to end the European economic paralysis simply never consider the role of government and its leftist Marxism that failed in China and Russia. They will continue to raise the retirement age across Europe to try to survive another year. Europe has become an economic catastrophe of untold proportions. The high tax burden prevents a dynamic renewal of the economy reducing the standard of living for everyone and perpetuating high unemployment as twice that of the rest of the industrialized world.

The GDP Decline Post-2015.75


The economic decline that we are now in moving into really 2036, is significantly different than pre-2015.75. The confidence shifted and 2015.75 was the peak in confidence in government. This is the rising discontent which produced Trump, BREXIT, and the rising separatist movements around the globe. The old way of running the economy is what has been declining and even when the GDP growth rate is being reported as up, the levels of growth are substantially in a bear market.

Likewise, unemployment has decline the the USA while rising outside, but even this is misleading. The quality of jobs has declined and much of the rise is attributed to part-time employment while more than 60% of college graduates cannot find employment in the field in which they paid a lot of money for. The student loans imposed upon them by the Clinton saddle the youth with such burdens for worthless degrees they are forced to live at home with their parents into their 30s. It has been the drop-outs who are the real innovators. Ernst & Young has been one of the top graduate recruiters in the UK and USA. They have announced the firm will be removing the degree classification from its entry criteria, saying there is “no evidence” that success at university correlates with achievement in later life. The best education has ALWAYS been an apprenticeship – not some university course taught by someone who has never practiced what they teach.

The economic growth is distorted and not really what governments are reporting. But even if we use their numbers as is we can see that the 2007-2009 recession was the worst since World War II. The top chart is the Fed data showing gross dollars so it looks like the economy is rising. Now let us look at that data on an annual growth rate basis. We can see the peaks and valley in GDP growth rates much more clearly. The third chart is simply month over month growth rates, very short-term. Now you can see what the central banks are so concerned about. The growth rate is declining sharply. Since 2015.75, even the USA is having a very hard time to reach 2% and sustain it and the USA IS THE BEST IN THE WORLD!!!!
Because the US is the core economy in the world, I have been stating that the decline unfolds from the peripheral first and moves into the core. The trouble we see in Europe and the start of the Refugee Crisis began with 2015.75. We see the rising economic problems even in China no less Japan. Emerging market debt has exploded and will be ripe for default. Trump was elected because the average person sees they are losing ground, not gaining. The youth no longer believe in the American Dream.
The model is forecasting NOT a “recession” in the old terms, but an economic decline. This is why taxes keep rising for they need money to try to retain bower. This creates DEFLATION and not the HYPERINFLATION that so many falsely believe is the only way empires, nations, and city states crumble into the dust of history.
As far as unemployment is concerned, here too we have to pick up the rug. Even the Post Office is hiring part-time workers so they do not have to pay pensions. There has been a rise in part-time employment to escape the benefits of Obamacare. The definition of employment has also been altered. You are not unemployed unless you look for a job.
This is all part of the economic decline that began with 2015.75. Even the poverty rate in Europe, the great socialist economy, has risen to 16% and is still rising. This is part of the discontent. The youth unemployment in Europe is just astonishing. High taxes on the “rich” who create small businesses that employ 70% of the population has devastated Europe. But the politicians are so married to Marxism, they cannot see what they are doing is the same economic extinction that took place in China and Russia that forced political change.
The USA is holding everything up right now. But our growth rates have declined and we are looking at the USA turning more negative starting from 2018 onward.