Tag Archives: Cycle of Civilization

Feb 11 2020

Do Lower Interest Rates Really Produce Bull Markets in Stocks?


Armstrong Economics Blog/Economics

Re-Posted Feb 11, 2020 by Martin Armstrong

QUESTION: Hi Marty,

Yes, the political situation in our country is out of control and you are right, there is no turning back.

But this truly pales in comparison to what is happening in the financial markets today. It looks to me like the Fed has aided and abetted this ridiculous surge in stock prices. The phase we are in started back in early 2016 when we were plumbing new lows. The blinked. Then as they tried to raise rates in 2018, the marked puked and once again, they blinked. Less than a year later we have the REPO Crisis which you have discussed many times. At your WEC in Orlando, you stated one of the problems today is “the paradox of solution”, which I found brilliant…every solution to a crisis produces an even worse result later. Then you mentioned this: That politicians in office today have even less experience, that those in the know are leaving letting those in charge impose solutions that don’t work.

Marty, all of this is adding up to those in charge of debt and rates, the Fed, now being incapable of dealing with reality. To me, it’s worse than politics. The markets seem to be telegraphing an inflation ahead and a collapse in debt markets at some point. But you have always used the 1920’s as a sort of analogue to our times, claiming at some point the Fed will be forced to raise rates, realizing too late they have goosed markets and are now losing control. I just don’t see it. Nothing in the current makeup of the Fed indicates they understand the issues. Not them, not anyone in government will let weak companies fail, banks even less. There is no will in this country anymore. No one can take the pain. The Fed seems like they want to bail out everyone.

Your thoughts?
M

ANSWER: I understand that the traditional view states that cheap money means people will borrow to buy stocks. That entire theory is very naive. However, when we actually look at the data, that market myth evaporates in sunlight. We have been making lower highs in broker loans, which shows what I have been saying all along — this is the MOST Hated Bull Market in History! We are nowhere close to the highs of 2007.

 

The market has risen NOT because of cheap rates but on a capital flight from just about everywhere into the US dollar. The Fed has been baffled because they initially were looking at that market myth. But they see there is no validity to that theory. They are focused on the problem that negative interest rates in Europe and Japan have created. The slightest uptick will be devastating to those economies, not to mention the losses on the outstanding long-term bonds which negative yields.

It is by no means creating future inflation. What it is creating is a future collapse in confidence with respect to the governments actually being in charge of the economy. This is why I wrote that book, “Manipulating the World Economy.” This is all coming to an end. We are looking at, not inflation, but a massive shift in investment strategy from public to private. The Fed cannot raise interest rates to prevent a rally without undermining the sovereign debt globally. The game has changed. The politicians will brow-beat the Fed because the Democrats are really Marxists and will scream at the Fed because their low rates are benefiting the rich. They are beyond brain-dead. The politicians are incapable of understanding the problem and they have become so confrontational that we can guarantee there will be no understanding reached because they are absorbed by this class warfare

Feb 11 2020

“Economics” – What Does the Term Imply?


Armstrong Economics Blog/Economics

Re-Posted Feb 11, 2020 by Martin Armstrong

QUESTION: Dear Mr. Armstrong, I am following your blog while living in the Netherlands and first of all I would like to express my deep admiration for the work you have been doing for so many years. And yet…..I have my doubts. Your company name involves the term “economics”. And when I read your blogs you seem to favor “economics” and “economic growth” above anything else. I know this is a worldly view. But could it be – with all the changes that are taking place – that let’s say twenty years from now we have reorganized ourselves and that we value other things in life? Is there any data that supports this view?

J

ANSWER: The actual term “economics,” I believe, was plagiarized by Adam Smith’s teacher Francis Hutcheson (1694-1746), who translated a book by the Greek Philosopher Xenophon (c. 430–354 BC) who wrote Oikonomikos around 400 BC. This work was basically how to manage your estate for dummies. Hutcheson called his Book III “The Principles of Oeconomics and Politics” giving birth to the word “economics.” The word’s Greek “Oikonomikos” stems from the compounded form of “oikos”(ancient Greek: οἶκος, plural: οἶκοι, English prefix: Eco) which was the equivalent of a household, house, or family, combined with “nomikos” which means the law or to regulate/manage. Therefore, Oikonomikos meant to regulate/manage the household or villa estate in those days. Francis Hutcheson, the teacher of Adam Smith, copied Oikonomikos virtually chapter by chapter which included how to manage your wife.

It was also Xenophon who proposed the first public corporation for a bank that would be formed by shares subscribed to by all the Athenian people. Commerce was seen as more important than even agriculture. Xenophon proposed a public bank that would lend at interest to expand the economy. He proposed that the profits would be used to pay for public works. During the reign of Augustus (27 BC-14 AD) in Rome, there was such a public loan bank, but not subscribed to by individual members of society. This public bank provided loans to the poor without interest and it was funded by the confiscation of property from those alleged to be criminals, which included political dissents as well. Collateral was required at twice the amount being borrowed. These types of public banks aided the purchases of land.

Even the committee in Congress known as the Ways & Means in the House of Representatives is the tax-writing committee. Members of the Ways and Means Committee are not allowed to serve on any other House Committee unless granted a waiver. The House Ways & Means Committee has jurisdiction over all taxation, tariffs, and other revenue-raising measures, as well as a number of other programs including Social Security, unemployment benefits, Medicare, the enforcement of child support laws, temporary assistance for needy families, and foster care and adoption programs. This is the committee that is named after the chapter of Xenophon’ work.

Therefore, against this backdrop, the term “economics” does not imply any specific type of system. You have everything from Smith, Ricardo, Marx to Keynes all lumped together under this same category. The economy will always change and evolve over time. So I am using it in this context. Xenophon’s world was all about how to manage an agrarian estate. So things will change with time, technology, and population.

The principle “economic growth” implies also population growth. The economy must grow to accommodate population growth. That is why communism fell because they arrested economic growth by divorcing it from population growth and then it must collapse. It is not something that is exclusive to “materialism” but reflects civilization and people coming together. Under feudalism, Rome collapsed into simple feudal states, and although they minted some coins, they are rarely discovered more than 30 miles from their origin. That is strong evidence that the economy collapsed and there was no interaction between these small states. Thus, you had low economic output or growth.

Even in Star Trek, money was eliminated and people simply used electronic credits – cryptocurrency. That is perfectly reasonable for the long-term future. The economy simply reflects the exchange of money (whatever form it shall take) for labor of the average person. The “rich” get richer from INVESTMENT which creates the economic growth vital to expand and accommodate the expansion of the population. It does not advocate any particular system. It applied under Communism to republics and everything in between.

Feb 10 2020

Cyclical Waves of Innovation


Armstrong Economics Blog/Understanding Cycles

Re-Posted Feb 10, 2020 by Martin Armstrong

QUESTION: Good Day, have you ever checked for cyclicity in scientific discovery and/or invention? if so, does your computer suggest anything about the next physics or mathematical breakthrough and what technological development might come of that?

thank you for all you do.

EAL

ANSWER: Yes, it appears to be a cycle of 51.6 years. Schumpeter called them waves of innovation that result in waves of creative destruction. Each wave of new innovation destroys the last. Cars wiped out horse & buggies. The internet is wiping out local stores, and technology has introduced streaming that has wiped out VCRs and DVDs.

Feb 10 2020

What Were the 30 Silver Coins Given to Judas?


Armstrong Rconomics Blog/Ancient Economies

Re-Posted Feb 10, 2020 by Martin Armstrong

QUESTION: Marty, do you happen to know what type/kind of shekel coins Jesus was most likely betrayed for?

Thanks,

A

ANSWER: The Biblical account makes no mention of shekels for they were not the coin of currency. Thirty pieces of silver was the payment for Judas Iscariot’s betrayal of Jesus, according to an account in the Gospel of Matthew 26:15 in the New Testament. The Roman Emperor at the time was Tiberius (14-37 AD). The exact date of his crucifixion is not known. Most scholars have provided estimates for the crucifixion to be within the range 30–33 AD, with perhaps April 7, 30 AD to be the majority of consensus. The pieces of silver would have been of the silver denarius. The amount of coinage under Augustus (27 BC-14 AD) was massive. The coinage of Tiberius was very frugal.

The only local coinage was that of tiny bronze coins for small change. To put this in perspective, the wages of a Roman foot soldier in 30 AD was 900 sestertii annually. A silver denarius was worth 4 sestertii. Therefore, 30 pieces of silver was about one and a half month’s pay for a Roman soldier. It was not a huge amount of money, but it was respectable for an average Jew.

The Roman denarius weighed about 3.7 grams in reality when its theoretical weight was supposed to be 4 grams. When the Jews revolted against Rome, that is when they over-struct or melted down other coins and issued their Shekel which was a Sumerian unit of weight. This was the dominant system from Babylon to Carthage throughout Northern Africa. The Shekel was by no means simply a Jewish standard of weight or coin.

Feb 10 2020

Forthcoming Books


Armstrong Economics Blog/Products and Services

Re-Posted Feb 9, 2020 by Martin Armstrong

COMMENT: Marty; the books you handed out at the WEC are spectacular. One first edition just sold for $2,000 on eBay. The second edition is going for $300 on eBay but there aren’t many of those either. I just wanted to say thank you for your generous gift to the attendees. The book is worth the price of the ticket, lol. I hope you get the time to do the next one.

DF

REPLY: I am trying to have another book for this year’s WEC. I have collected books my whole life. I know the Greatest Bull Market in History from 1986 goes for $2500 to $3000 on eBay. I only have one copy of that myself. One of those was presented to President Reagan back in the day. So First Editions are always worth a lot more. The second edition of Manipulating the World Economy was amazing. It sold out in less than 3 hours. That is the one that some members of the press got their hands on. Not the first edition. We will have a 3rd edition but that will not have the same value as the 1st and 2nd. If that book becomes a major classic when the economy turns down, then its value should rise even more. Keynes first published his work in 1921 despite the fact he wrote it before WWI. His book: The General Theory of Employment, Interest and Money was published in 1936. They will bring $3,000+. Even a 1799 edition of Adam Smith still brings over $2,000.

I am finishing up two books I really want to get out this year before all my time evaporates. I am trying for the Geometry of Time and the Economic Confidence Model, which is the proof back to the inception of recorded time. I know a lot of people are waiting for the 3rd edition of Manipulating the World Economy. We are working on that too.

 

Feb 7 2020

Angkor Wat & Its Decline and Fall


Armstrong Economics Blog/Ancient Economies

Re-Posted Feb 7, 2020 by Martin Armstrong

QUESTION: Angkor Wat was abandoned and the whole society seems to have vanished. I saw somewhere that this was due to climate change and the drying up of their canal system. Is this something that shows in Socrates?

Best regards

MU (Sweden)

ANSWER: The fall of Angkor Wat was attributed to climate and abuse, but that is just wrong. The real story about the Angkor civilization primarily involves religion and the shift from a Private to a Public Wave marking its collapse. The Angkor civilization was established in 802 AD, which interestingly came at the beginning of the third wave in the current group of 309.6-year intervals. That wave group will ultimately peak in 2032, bringing major change to the world economy, which may even involve religion as well.

The Angkor civilization’s heartland and capital city was on the banks of the Tonle Sap Lake in northwest Cambodia. The Angkorian state was founded and grew during a period of favorable climate with abundant rainfall. This much is true as with most civilizations during warming periods. At its height, Angkorian rulers probably controlled a large portion of mainland Southeast Asia.

The Angkor civilization peaked the early 1100s, completing one wave of 309.6-years in 1104 AD. This was when the construction began on the Angkor Wat temple site. But we must look closely here for religion also came into play. The temple was constructed as a re-creation of the Hindu universe. There were five sandstone towers that rose above the four temple enclosures. This represented the peaks of Mount Meru, the center of the universe. The temple complex is surrounded by a very large moat which symbolizes the Sea of Milk from which “amrita,” an elixir of immortality, was created.

The peak in the culture took place around 1104 in conjunction with the peaks of the Economic Confidence Model. That is when there was a shift in culture. Indeed, by the end of the 13th century, numerous changes were taking place. The last Sanskrit inscription dates to 1295. The last inscription in Khmer, the language of Cambodia, appears a few decades later in 1327. As the ECM shifted from a Private to a Public wave, not only did society become more regimented, but the religion began to change as well. There was a shift from Hinduism, which was the theme of the Temple, to the region-wide adoption of Theravada Buddhism.

Buddhism and Hinduism agree on karma, dharma, moksha, and reincarnation. They are different in that Buddhism rejects the priests of Hinduism, the formal rituals, and the caste system. Buddha urged people to seek enlightenment through meditation. Therefore, this religious shift brought the caste system to an end. The Private Wave represented the rise in individualism and the anti-government sentiment we see even today. The priests of Hinduism were overthrown, which interestingly corresponded with the shift in the ECM.

This religious shift had a profound disruption on the culture and included political changes. No longer was there state-sponsored stone temples nor was there a royal bureaucracy. This was all rejected and overthrown. Everything shifted to community-based Buddhist pagodas that were now constructed from wood. Part of this religious shift to Buddhism took place simultaneously with an increase in maritime trade with China. This shift in the economic structure combined with the religious shift from Hinduism to Buddhism meant that the entire facade of Angkor Wat was no longer religiously acceptable.

With trading shifting to maritime, the capital was relocated further south, near the modern capital of Phnom Penh. With international trade becoming more important, moving the capital to the south allowed rulers to expand their economic powers. Clearly, the abandonment of Angkor Wat was primarily due to religion and the expansion of international trade.

Insofar as climate is concerned, claims that global warming destroyed the city are not valid. The Paleoclimate research in the region clearly reveals that there was a region-wide environmental change in climate because climate is always changing. There was a series of decades-long droughts, but these were also interspersed with heavy monsoons. The impact of this in agriculture no doubt sparked the development of international trade.

Other claims that the Thai invaded and sacked the city of Angkor Wat by the 15th century. The capital had already been moved which meant that Angkor Wat was easy prey and no longer economically important in Cambodia.

Therefore, the shift that truly undermined Angkor Wat was the one which saw Buddhism rise, making the entire complex an antiquated religious place that was no longer respecte

Feb 6 2020

Is the Boom-Bust Cycle Dead?


Armstrong Economics Blog/Understanding Cycles

Re-Posted Feb 6, 2020 by Martin Armstrong

QUESTION: Do you agree with Bridgewater’s Bob Prince that the Boom-Bust Cycle is over? Have they made an offer to buy you out yet?

SH

ANSWER: Absolutely no way. His theory is that the tightening of central banks all around the world “wasn’t intended to cause the downturn, wasn’t intended to cause what it did.” Prince explained, “I think lessons were learned from that and I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

That is an interesting take, but it reflects the typical investment manager focus. They tend not to pay attention to history and always assume that the financial world started as far back as maybe 1971 if not 1990. The boom-bust cycle that he refers to has been the classical economic expansion and contraction in economic activity. However, the very book I just published, “Manipulating the World Economy,” deals with this issue of central bank intervention. He seems to think that since the financial crisis and monetary easing has disrupted that cycle, that it has fueled the longest-running bull market in stocks.

This is why Bridgewater has had a terrible year in 2019. They have completely misunderstood the market and do not grasp the capital flows and how they drive markets. Indeed, Bridgewater Associates, the world’s largest hedge fund firm, had a very difficult 2019 because of this view. The firm’s flagship Pure Alpha strategy was essentially flat in 2019, with Pure Alpha 18%, the more leveraged version, falling 0.5% for the year, according to an investor in the funds. It has been this fundamental focus which is why they missed the bull market.

The repo market is already proving the idea that the boom-bust cycle is dead. Interest rates are pushing higher and the Fed is desperate to try to prevent that rise. You cannot defeat the business cycle. Even Paul Volcker admitted that much (Rediscovery of the Business Cycle). Many people have thought that governments have killed the business cycle. They have ALL BEEN PROVEN to be wrong!

No, I have never met Ray Dalio that I remember. If I did, it was just in passing perhaps at some cocktail party. Bridgewater is not a client so the idea of some offer is not even plausible. It is one thing to take in a partner, it’s something entirely different to sell everything to some private firm which would then have exclusive use. That is not my goal and I would not live long enough to spend some mythical billion-dollar sell-out. Sorry, that is not my agenda. I would like to see Socrates help to better manage the world economy, not make money for a bank or hedge fund exclusively.

Categories: Understanding Cycles
Feb 6 2020

Quebec Issued the First Paper Money in the New World


Armstrong Economic Blog/America’s Economic History

Re-Posted Feb 6, 2020 by Martin Armstrong

QUESTION: Mr. Armstrong, a goldbug told me you were wrong that paper currency did not begin with the Civil War. I told him you have written plenty of times about the continential currency. I believe you said somewhere that paper currency did begin in America. Am I correct in that statement?

PC

ANSWER: Ironically, the very first paper money in America was issued in Canada. In 1685, the colonial authorities in New France (Quebec) had no coin. A military expedition against the Iroquois, allies of the English, had failed and tax revenues were down as traders circumvented the taxes by dealing with the English. This predates the official first paper money issue of February 3, 1690, by the Massachusetts Bay Colony. This paper money issue was used to pay for its war in 1689 when the British demanded that Americans fight the French in Canada. Lacking coinage to pay the troops, the government issued certificates to the troops in lieu of paying them with coins.

Lacking coins, New France printed various face values on playing cards and affixed a seal to them. When the king’s ship arrived, they redeemed this “playing card money” in cash. This system was brought to an end after 1686, but it was necessary to return to it during the period 1689-1719. In 1714, card money equivalent to a value of 2 million livres was in circulation. Some cards were worth as much as 100 livres.

The king later returned to using playing card money in 1729 when the merchants demanded it due to the shortage of money. This issue of playing card money used white cards without colors. They cut or had their corners removed according to a fixed table. The whole card was worth 24 livres, which was the highest sum in playing card money. Depending on the number of corners that had been cut off, this is what determined the face value.

The first paper currency in what is now the United States was issued in 1690 in Massachusetts Bay. Because of the collapse of the Continental Currency, the United States did not issue any paper money until the Civil War. There were private bank issues which are known as broken bank note era from the 1840s. But the federal government did not issue paper money until the Civil War to fund its expenses

Feb 5 2020

Real Estate – Cycles – Real Value


Armstrong Economics Blog/Real Estate

Re-Posted Feb 5, 2020 by Martin Armstrong

QUESTION: Your real estate model which peaked in 2007 was the broad crazy speculative market you explained in the low end of the market. Then there was a rally back into 2015 which you said would be mainly in Europe and the high end of the market. I am in France and there an uptick in some prices. But I can see, as you taught us, this appears to coincide with the decline in the euro. What actually comes after all of this? I subscribe to the Pro version and you have all the real estate index there covering around the world. Can you provide an update?

Thank you so much

HR

ANSWER: The 2007 high was the low-end of the market which became the bubble. That led to the massive decline in real estate where it became a bad word. I had a friend who bought a house at a public auction. The owner had bought it for $7 million at the peak in 2007. My friend bought the property in 2017 for $2.3 million.

Real estate is very hard to forecast because you have the broad market, the low, middle, and high ends of the market. Then you have niche areas that boom in the face of others doing nothing. The 2007 high is the peak in “real” terms. There are many homes in the low to middle-end that are still 30% to 50% below the bubble high in 2007.

The 2015.75 rally was more of the high-end and this was driven by international capital flows. Thus, it was primarily intensely felt in the main centers where international capital moved such as Vancouver, New York, Miami, Los Angeles, etc. You did not see major price advances in smaller regions of no interest to international capital.

Then you have the tax migrations. People are moving from the high tax states to the no or low taxed states in the USA. I had looked at buying a house for my family in Florida, and I had to do the Singapore conference in 2017. I said I would put in a bid upon my return. The house just went on the market. When I returned in a couple of weeks, it had sold. Then the house next door went up for sale and I had to do the Rome conference. I was going to put in a bid and by the time I returned, that had sold. Other areas in the high-taxed states can’t sell. So there are a lot of different outcomes depending on where you are looking.

You are correct, the record high in the French real estate market remains 2015. There was a three-year low in 2018, then a bounce. This is true of all the results of the decline in the euro which bottomed initially in 2017. You have to look at this from an international “real value” perspective. What a house sold for going into 2015 when the euro was on average $1.30 compared to the international value when the euro was $1.03 is a substantial difference.

 

You can always just buy the property and then hedge the interest rates and currency. We all need a place to live. In terms of “real value” in real estate, that should begin to rise again after 2032. Going into that period, real estate will rise in nominal terms on a very varied basis depending upon the attitude of the local government. In the USA, for example, do not expect property in Illinois to ever reach the value it was even in 2015 no less 2007. Local municipalities are going broke and they will become very abusive in taxation. This is when people just start to walk away from the property, as was the case with the fall of Rome.

Categories: Real Estate
Feb 5 2020

Why Exaggerated Nonsense on Flu?


Armstrong Economics Blog/Disease

Re-Posted Feb 5, 2020 by Martin Armstrong

QUESTION: Mr. Armstrong; Why is there such an exaggerated response to this Coronavirus when the death toll is far less than the flu each year? Both the Swine and the Bird flu are far more dangerous. Do you have any take on why the conspiracy contingency just loves such doom & gloom?

HC

ANSWER: I do not know. The latest death toll in China has reached at least 490 people who have died out of 24,324 confirmed to be infected (about 2%). The 1918 flu pandemic, which lasted nearly two years, killed more than 500,000 Americans, historians estimate. The CDC estimates this year, 19,000,000 – 26,000,000 have been infected with the flu. They estimate 8,600,000 – 12,000,000 will seek flu medical visits of which 180,000 – 310,000 will be hospitalized and the death toll will be between 10,000 and 25,000. The number for just the normal flu season is far worse than this coronavirus. The Flu killed and hospitalized more people in the United States 2017/2018 winter than any seasonal influenza in decades since 1918. Some 80,000 people died in the United States alone.

If we assume that about 45% of those infected seek medical help using the standard flu numbers, then with 24,324 confirmed persons infected, that means there should be about 53,512 people infected so far. China has come down very hard trying to contain this outbreak. Chinese tourism has all but collapsed and we should see a very sharp decline in the economic output in China for the first quarter of 2020. They stopped flights to Hong Kong as well. China has been clamping down aggressively. We were planning a Shanghai WEC in May. The hotel is closed right now and so far it does not look good. The government has directed employees to remain home for 10 days. It looks like we will be doing Frankfurt and Orlando.

Nevertheless, while this may become a pandemic since it spreads like influenza each year, we still need to be concerned about the Bird Flu and Swine flu for if they cross to humans, the death toll will not be a mere 2%. Definitely, don’t eat any bat-burgers this year. Maybe beef is better this year. (I know the vegetarians will write in, I respect that. I have even tried the charcoal ice cream. I still like a good burger).

So why are people exaggerating this coronavirus? Good question! People have been feeling like the world is ending for thousands of years. Aethelred II took his portrait off the coinage for the year 1000 believing the world was coming to an end and Christ would make his second coming. When that did not happen, he promptly put his portrait back on the coinage.