Understanding the Energy Model


 

QUESTION: Hi Marty

I try not to bother you with questions, I know you’re plenty busy answering much more complex questions but I’m wondering if you could explain energy in the markets a bit?

I always watch for divergences in energy and price (both positive and negative), or fading energy during a rally, or a random jump in energy during a consolidation period but I can’t stop thinking about your last private blog where it can’t crash if the energy is negative… so only if it’s peaking? So should someone be cautious if the energy starts getting high? Does that also mean if it’s negative it has more potential to swing to the upside?

Here on bitcoin energy peaked after price peaked, which leaves me confused again, what does that mean? And both Bitcoin and Netflix and others I’ve found had a panic to the upside when the energy went negative, is this more of a rule, or are these exceptions?

And the million dollar question, are there other things I should be watching when it comes to energy? I’m sure there is still much I don’t know

Thank you,
NS

ANSWER:  The Energy Model is measuring the bulls against the bears. It is providing a different measurement of how much “energy” remains in the market from the long-side. Therefore, if people are recently long, i shows to what extent that represents the whole of the market position. A crash is possible when energy is at a high level and a rally is likely when energy is negative.

In the case of Bitcoin, the market failed to make a new high with the new high in energy. That was the divergence warning that this was a top. In Netflix, the market was bottoming and the energy turned negative. Again, because the energy was negative, that effectively means the liquidation is over. It is impossible to get a panic crash without energy still in the positive. The risk will be to the upside when the energy is negative.

Now, let’s look at the Dow. You can see that energy bottomed negative three weeks from the breakout. This, again, warned there would be no crash as everyone was predicting. The Energy Indicator is an excellent tool in judging the risk in a market from a purely numerical perspective — not opinion.

 

EU Refuses to Negotiate Fairly with Britain – Demands of a Customs Union


QUESTION: Mr. Armstrong; could you explain this whole Customs Union issue in BREXIT? Some see it as a great idea, others say it is surrendering sovereignty to Brussels.

SN

ANSWER: A customs union, some claim, would help businesses that send goods back and forth to the European Union. So it would be of interest to Britain’s manufacturers, particularly the automobile industry. They also claim that it might ease complications of the much-hated Irish backstop plan, which is intended to eliminate the need for hard border checks between Northern Ireland and the south.

However, a customs union would allow goods to flow easier, in theory, but it would not allow for frictionless trade. It would keep the tariffs Britain pays on goods that cross the border equal to those that countries in the European Union pay currently but at a huge cost. The goods being traded will still need to meet the same product standards that apply throughout the EU. That is the key.

Turkey is a member of a customs union with the EU, but it is not a member of the EU bloc itself. Therefore, trucks are held up for hours as guards check for permits and make sure the products being transported are in compliance with regulations set in Brussels. They would do the same with a vengeance with Britain. A customs union would not cover trade in services, finance, trading, like legal counsel and information technology, which are by far the largest sector of the British economy – not trucks going back and forth.

The devil is in the detail of a customs union. The EU demands that to be in a customs union they must surrender their sovereignty to Brussels and will be prohibited from making their own trade deals. That means Britain could not enter trade deals with China or the United States simply because it does trade with the EU. This defeats the entire understanding of BREXIT.

 

France Refuses any Negotiation on BREXIT & Demands to Punish Britain


Paris is adamant that the EU should not renegotiate the Brexit deal. The French want to punish the British at all costs, and that means at the expense of their own employment and markets. Amélie de Montchalin, France’s minister for European affairs, said, “If the UK wants to leave the EU, and in an orderly way, the withdrawal agreement is the deal on the table, which has been negotiated for over two years. We’ve also said that the political declaration on the future relationship is open to discussion if the prime minister had a majority.”

France’s position is to end trade by blocking trucks from Britain through the ports of Calais and Dover. They are more interested in punishing Britain than anything else. They refuse any negotiation whatsoever. British trucks will not be able to board ships in Dover in a no-deal BREXIT scenario if they do not have the correct customs paperwork, following a deal between the Port of Calais and Channel shipping lines. Any excuse will prevent trucks from delivering anything to Europe.

Australia Lowers Rate to Historic Low of 1%


The Reserve Bank of Australia has cut the official cash rate for the second month in a row to 1%. As we head into the turning point of the Economic Confidence Model come January 2020, the unemployment rate increased to 5.2% in April. GDP growth remains very low at 0.4%, wage growth is sluggish, inflation is well below target, and retail sales are struggling. None of this will change until after the ECM turns as people begin to see that central banks are incapable of managing the economy.

The Forecast of 1997 Calling for the Inverse Relationship between Bonds & Shares Remains on Target


QUESTION: Mr. Armstrong; I attended your WEC in London back in 1997 when the Euro Commission took the entire back row. I remember your forecast that we would begin a period of a dramatic shift in the bond-equity correlation I believe you said would last for at least 23 years. That is nearly due. You were obviously correct and that did begin with the introduction of the euro in 1998. You were dead center between Barton Biggs and Steve Roach. Do you still see this inverse relationship flipping in 2021 as you forecast back then?

JK

PS I left the bank….. and am now retired.

ANSWER: A lot of people I knew in the various banks back in the 1990s have left before the cards start to fall. I remember well. They were at Morgan Stanley back then and the two were polar opposites on their forecasts if I remember correctly. Barton Biggs argued that the world would be flooded by a glut of cheap Asian labor and Steve Roach was pointing to the Philips Curve warning that public deficits in the west would lead to a massive inflationary bonfire.

The Stock-Bond Correlation was the real debate. Our model was warning that stocks and bonds would indeed behave very differently which has materialized. Since 1998, stock prices and bond prices have been negatively correlated. In other words, when stock prices go up, bond prices go down and vice versa. Overall, stocks and bonds are indeed currently acting in opposition to each other on the macro-trend level. There has been a negative correction which some call the “flight to quality” when confidence collapses in the private sector, capital fled to the public sector. The broader 250-year relationship would argue that this is highly unusual. It is true that stocks and bonds moved up and down together throughout the 250 years prior to the 21st century.

The reason I delivered that forecast back then was the realization that government debt had entered a perpetual borrowing cycle ever since World War II. Moreover, the 224-year cycle of political change was due in 1999. That meant the political peak in government would take place at that time. The economic peak would by 2007. Both of those forecasts have been absolutely correct. Politics has declined steadily and ever since the 2007-2009 crash, interest rates have dropped sharply and there has been a contraction in inflation with a decline in economic growth.

In Its Just Time, I wrote: “While the clear high in the political state of the United States took place in 1999, the economic high came precisely to the day on February 27th, 2007. “

The flip in this relationship is still on target. Nothing requires any change to that forecast I delivered back in 1997. This is all being driven by the Sovereign Debt Crisis.

The Next 8.6-Year Wave will be Inflationary


All the real science is warning that there is a reasonable chance that we are headed into a much colder period ahead. This will have an impact on food prices and out computer models have been warning that the next wave of the Economic Confidence Model should be an inflationary wave. Even a new study from  nature.com said: “The recent prolonged solar minimum and subsequent weak solar cycle 24 have led to suggestions that the grand solar maximum may be at an end.”

The next 8.6-year wave beginning in January should produce a collapse in confidence in governments which will result in a shift from Public to Private assets, but then on top of this, we see a shortage in agricultural markets adding to the inflationary wave coming. Then add the Monetary Crisis and Sovereign Debt Crisis cycles and we end up with some very interesting impacts during the next wave.

Socrates & Gold


COMMENT: Mr. Armstrong; I want to salute you on creating Socrates. Its forecast on gold was remarkable. When gold was starting to breakout on May 31, Socrates wrote concerning your breakout points:

We did close below the previous session’s Intraday Projected Breakout Resistance indicator which was 129370 settling at 129240 gesturing that the market is not in a breakout mode at that precise moment. The current Projected Breakout Resistance for this session was 129740 which we have now closed above suggesting the market is starting to possibly breakout to the upside if it can be maintain in the next trading session. The Projected Breakout Resistance indicator for the next session will be 132023.

The next day closed at 1327 and off it ran. It is amazing how the computer explains these moves in advance.

See you in Orlando

HP

REPLY: This is my objective. To have a computer write the analysis and you know there is no human bias involved one way or another. Just call it by the numbers without all the nonsense. Socrates now covers more than 1,000 instruments around the world every day. There are not enough analysis in the world to write so many reports every day. This is the way to the future. Objective analysis without the human bias.

 

Changing the World v Dark Forces of Corruption


QUESTION:

Hi Marty !

How can we really expect politicians to make any kind of decisions when even the best humans can only think of 2 MAYBE 3 aspects at a time…. let alone complex dimensions that your computer seems to be able to interpret so well. Are we due for a reality check in what the public should realistically expect from our “leaders”?

It seems that if politicians actually had some skin in the game like CEO’s and investors they might act differently?

Hope the weather is nice in Florida ! its raining as per usual on the west coast !

–N

Vancouver Island, BC, Canada

 

ANSWER: I really believe that creating a fully functioning AI computer that can answer the questions because it can see everything as a whole is essential for the complexity we live in. I have tried to do that in the field of economics, but there are dark forces that are trying very hard to prevent what I have spent my life trying to create. There are tremendous conflicts where people do not want change because it would end the gravy train. I am not naive. There are those who would love to kill me or conjure up a civil contempt again to imprison me until I die to shut me up. This is the world we live in. They will say anything to win and there is never a constitutional right that is worth anything to protect you. As I have written many times, they get to do as they like and it is always your burden to prove you have any human rights at all.

So I share this vision of an honest government that is really for the people and by the people. They are easy words to write or to say. So many people have died fighting for the true meaning of those words. The dark forces of corruption are powerful and very hard to overcome.

World War III – 2024-2027?


QUESTION: Besides the Bible, there are many clairvoyants who predict that there will be World War III. Your models predict the rise in war tensions. What is your “opinion” about the prospects for a third world war?

JC

ANSWER: There is no doubt that we are in the process of a rising war cycle. It really appears to be more of a bitter war between leaders once again, as was the case with the last two World Wars. World War I was really about destroying the former Holy Roman Empire which had its seat of power in Vienna. That city was besieged in 1683 when the Ottoman Empire sought to conquer Europe. If you recall, the financial panics I used to discover the Economic Confidence Model began with the Panic of 1683 caused by the invasion of the Ottoman Empire.

The War Cycle is turning up and we are looking at a possible peak as early as 2027. This is why I have been concerned about the economic crisis in 2021-2022. Once the economy turns down, it will be the fuel for the war.

We must also respect that this particular cycle is the combination of both civil and international unrest. I do not believe we are in a cycle of conquest. Nobody wants to conquer and occupy each other — neither China, Russia, nor the USA. So, on the international level, it appears we are dealing with old grudges. When I have asked why Russia is our enemy since they abandoned communism, the only response I get is that, “Well, they are Russian!” World War I unfolded when the Archduke of Austria was assassinated by a Serb. He was heir to the throne of the old Holy Roman Empire. The French hated Germany for they were defeated under Napoleon. Additionally, in the first Treaty of Versailles in 1871 Germany became an empire at the expense of France. So it was really very much about settling old debts.

World War II was created by the oppression of the German people for the sins of their leaders. That led the German people to turn to Hitler because they were humiliated.

We would classify Napoleon and Hitler as warmongers of conquest. The Russian Revolution in 1917 and that in China led by Mao were class warfares instigated domestically that manifested into revolutions arising from civil unrest.

In Russia, the revolution really began in October 1905 when czarist troops opened fire on a peaceful group of workers marching to the Winter Palace in St. Petersburg to petition their grievances to Czar Nicholas II. Some 500 protestors were massacred on “Bloody Sunday,” setting off months of protest and disorder throughout Russia. It was 8.6 years later that World War I erupted in 1914. This signaled that there would be a rise in tensions 112 years later which would be 2017.

Vladimir Lenin was born in 1870 into a middle-class family in Ulyanovsk, Russia, but when he was a teenager, he became political after his older brother was executed in 1887 for plotting to assassinate Czar Alexander III. When he reached the age of 17, he was expelled from Kazan Imperial University for taking part in an illegal student protest. Then in December 1895, Lenin and the other leaders of the Union were arrested. Lenin was jailed for a year and then exiled to Siberia for three years. Upon his release in 1900, Lenin went to Western Europe. In 1902, he published a pamphlet entitled “What Is to Be Done?” Lenin argued that only a revolution would bring socialism to Russia by force. In 1903, Lenin met with other Russian Marxists in London and established the Russian Social-Democratic Workers’ Party. From the outset, Lenin’s Bolsheviks (Majoritarians) advocated violence and the Mensheviks (Minoritarians) advocated a democratic movement toward socialism. The split became official in the 1912 conference of the Bolshevik Party. If we use this as the start date, then we arrive at 2024 where we may see the sharp rise in tensions on a class warfare foundation worldwide once again. This may mark the culmination of the Marxist-Socialism movement that could end in blood in the streets once again.

Consequently, this World War III is more likely to be a combination of class warfare and settling old scores. The period of concern would be the 2024-2027 time frame from a cyclical perspective (sorry, no visions for I lack the clairvoyant ability).

 

The Rise in Agriculture for the Next ECM


The Fall Army Worm (FAW; Spodoptera frugiperda) is a crop-eating pest that was first detected in China back in January 2019. It has now spread across China’s southern border and currently impacts about 8,500 hectares (127,000 mu) of grain production in Yunnan, Guangxi, Guangdong, Guizhou, Hunan, and Hainan provinces. Officially, Chinese authorities have employed an emergency action plan to monitor and respond to the pest. FAW has no natural predators in China and its presence may result in lower production and crop quality of corn, rice, wheat, sorghum, sugarcane, cotton, soybean, and peanuts among other cash crops. Experts warn that there is a high probability that the pest will spread across all of China’s grain production area within the next 12 months.

This is obviously a contributing factor to what the computer is projecting for agriculture. Keep in mind that the patterns the computer identifies come from the price movements. We have wheat prices back to 1259. Clearly, the projections it makes are all inclusive of weather and disease, for everything unfolds in a cycle.