Can AI Think?

QUESTION: In George Gilder’s book “Life after Google” he states:
“AI cannot compete with the human intelligence that connects symbols and objects. AI cannot do without the human minds that provide it with symbols systems and language; programs it; structures the information it absorbs in training, whether word patterns or pixels; provides and formulates the big data in which it finds numerical correlations; and sets up the goals and reward schemes and target sequences that allow it to iterate, optimize, and converge on a solution. Consisting of inputs cascading through complex set of algorithms to produce outputs. AI cannot think at all.”

As someone who has developed Socrates I was wondering what your thoughts are as to the future of AI?


ANSWER: George Gilder is not a programmer. His comment is just skimming the surface. There is no complex set of algorithms that will stand the test of time. A computer cannot think, which is correct. That does not mean it is impossible to beat humans. Even Big Blue defeated the best chess player. A computer can analyze every possible strategy and select the best one whereas a human cannot.

When I designed Socrates, I fully understood that there could be no fixed algorithm that would work because the world was all connected and moving dynamically. After all, no empire ever lasted. Everything rises and then falls.

Feeding everything into the system and designing it to investigate, as I would in the human world, allows AI to make decisions based upon those investigations. It does mimic my thinking process, but it is not a biological entity so it has no soul and cannot think.

I taught it language and how to speak back in the 1980s because it would come up with conclusions that baffled me. I had to devise a way to communicate with it to understand how it reached certain conclusions.

Lebanon Declares State of Economic Emergency

Lebanon has maintained a peg to the US dollar for about two decades and as all pegs go, this one is under pressure as the rise in the dollar imports deflation. The central bank has declared an economic emergency as it attempts to reassure people it will hold the peg. Lebanon is one of the world’s most indebted nations and it maintains its pound to a peg of around 1,507.5 to the dollar. This attempt to reassure investors about the country’s ability to repay its debt and strengthen its currency is not being considered reliable as the start of Sovereign Defaults is underway on an economic pressure. Countries have been borrowing year after year with no intention of paying off their national debts. It has been a fool’s game and we are starting to see this pressure build as it will FIRST on the currency pegs, and then on the inability to meet debt payments.

Welcome to Big Bang (2015.75-2022). We begin with peripherals and state/provincial level as well as municipal

Only a Computer can Forecast What no Human Has witnessed in Modern Times

COMMENT: Marty; I found my ticket to your Japanese session from March 1999 when you warned the audience the club was targeting the yen for March-end. You told everyone how to defeat their manipulation and that was just great. You saved everyone billions that day. They called you Mr. Yen for that one. The club didn’t appreciate that call. I heard that on the phones. I remember the yen went from 117 to 122. They lost a lot that week.

I am coming to this 2019 WEC. For someone who has been following you for decades, I understand what you mean that this is an event that has never taken place before in modern market history so we will really need Socrates this time.

May I suggest that you give a quick demo on how to use Socrates to its fullest for this event. I think it would be really helpful this year.



REPLY: Nice to hear from you. Wow, you still have a ticket from Tokyo. That is an excellent suggestion. You are correct. I will do a demo and show how to look for the indicators because it will indeed take a computer to do what no human has ever seen before in modern times.

All the best

A Nose for Trading

QUESTION: I realize my opinion is of little consequence; but I find something interesting and needed to share. After doing a lot of backtesting using many criteria over many stocks my unqualified opinion is that no fixed criteria can be used analyze stock charts over time and many stocks.

I worked with a well respected radiologist in digital imaging. In the early days of digital imaging he perform studies on what resolution and how much time was required to accurately diagnosis a digital image. He told me it came down to a very experienced person would look at an image and get an “impression” of it and not so much looking for #1, #2… etc.

From 20 years of looking at many thousands of stock charts I understand this. As a human I will never be able to write a program that will capture all the nuances my mind will in an instant look at an image. I assume Socrates writes its’ own using an immense amount of data that continually changes. Maybe Socrates can write a program to diagnosis medical images – correct a lot of mistakes.


ANSWER: You are absolutely correct. We call it having a “nose” for trading. There is no single algorithm that you can devise or cycle that will predict every turn in a market. The reason for this is because such analysis is attempting to be employed in total isolation. Everything is connected. The Economic Confidence Model has called every turning point in the global economy, right down to the economic decline currently into January 2020.

What you must understand is that this is a global business cycle and you must view it in that fashion. For each wave, the focus shifts. One wave will be a commodity is the hot investment. The next might be real estate, This may be followed by stocks or bonds. Then the focus will shift also around the globe so the “hot” market becomes Japan, then Southeast Asia, then Europe, then America.

Then there is the major trend insofar as the sentiment. We have all witnessed bullish news unfolds yet the market responds in a bearish mode. This is because there is also an oscillating trend to how we interpret events. Just recently, the Fed lowered rate at the top of the stock market in July 2019. The market crashed instead of rallying with lower rates. The interpretation suddenly shifted and people saw it as anticipation of an economic crisis to come.

Nevertheless, the world economy turns with the cycle; some are making highs while others are makings lows. At the same time, we have the rise and fall of nations economically. This is why I say it cannot be forecast by looking at the trend of a single market in motion. While you can do technical analysis on any market, you should never lose track of the entire process. It is the global trend that will swamp a local market and a financial contagion will impact everything during a liquidity crisis. That is what happened in 1998 with the Long-Term Capital Management crisis. The problem was a loss in Russian bonds which could not be liquidated. To cover the losses, they began selling everything else to raise money. Even the Japanese yen rallied with the dollar falling from 147 to 103 in just weeks.

Global Market Watch: DJIND-D

Socrates is monitoring everything so it looks for things differently than a human analyst. Here is the Global Market Watch on the Dow Jones Industrials. It is entirely pattern-recognition. This is a different method of analysis altogether, demonstrating that a computer can have a “nose” for changes by studying the patterns in far more detail than a human. This allows Socrates to look just at the patterns and get that sixth-sense.

Advising Trump

QUESTION: Mr. Armstrong; you deny advising Trump. Yet you are the only person who had forecast that the US was holding up the rest of the world economy which he also now says. You also said Trump was making a mistake with China, and at the G7 he admitted he may have made a mistake. You previously advocated cutting payroll taxes and has come out and said that is a possibility.

Is it all just a coincidence that he has turned to all of your recommendations? You had Nigel Farage speak for free at the WEC and he is friends with Trump. He wasn’t paid. So he volunteered. Rumor has it you have been advising Asian leaders and you did an interview from there admitting you had clients on both sides of the China issue. You have your finger in the mix. Just admit you advise Trump.


ANSWER: I do not advise President Trump. I do not deny that there are people in his administration and Washington who are well aware of our computer. Yes, Nigel publicly admitted we were the only ones to forecast a BREXIT victory and Trump. Politicians take notice of such forecasts.

If the Trump administration has articulated our forecasts, I cannot say for sure. They may throw them into the pot, shake it rather than sir like James Bond, and then articulate what comes out.

Once again, I am NOT advising Trump directly. If he is being told what our computer is forecasting by others I cannot confirm or deny. I have not had any specific conversations to that effect so far.


Middle East Chaos

The Middle East has been in turmoil and Trump has stood his ground against the neo-cons. The UAE is trying to avoid involving its nation in the conflict with Iran and certainly sees no upside to turning its country into a battlefield between the US and Iran. Iran promised to talk to the Yemeni officials to avoid hitting targets in Dubai and Abu Dhabi, provided the UAE pulls out its forces from Yemen. The so-called “deal of the century” proposed by President Trump’s son-in-law Jared Kushner, which sought to deal with the Palestinian-Israeli conflict, was met with minimal interest. The $50 billion in aid to the Palestinians was view as just a bribe.

Meanwhile, Trump has been thwarting the neo-cons for he came out opposing their policies, stating with respect to Iran: “We’re not looking for regime change. We want them out of Yemen.” Those unfamiliar with the players in the Middle East should read our report on the region – The War Cycle.

Cycles, Einstein & Galileo – Geometry of Time

QUESTION: Mr. Armstrong; It has dawned on me studying Einstein’s General Relativity, that the two of you reached the same realization from different fields. Newton’s laws of gravity were turned upside down by Einstein who rejected Newton that there was a linear formation to space. Einstein came up with the fact that space was curved and that time and space were linked so that time was not the same throughout the universe. In reading the few chapters on the Geometry of Time you handed out at I think was the 2011 WEC, your entire process is also linking the curvature and time albeit from a different observation than Einstein.

Would you elaborate?


ANSWER: According to Einstein’s theory of general relativity, massive objects warp the spacetime around them, and the effect a warp has on objects is what we call gravity. So, locally, spacetime is curved around every object with mass. However, what led Einstein to his discovery was the question of free fall. Before I had ever ready Einstein, I was probably about 12 years old and I fell out of a tree and over a cliff falling probably a couple of hundred feet. I was lucky and it was Fall so at the base of the cliff was a mountain of leaves. The leaves broke my fall but my teeth nearly came through my bottom lip. The wind was knocked out of me and my nose was bleeding. I went to my friend’s house nearby and finally got my nose to stop bleeding. I kept tasting blood. I opened my mouth and saw the injury and only then did it start to hurt. It was a good 30 minutes. I went to the hospital and they stitched me up.

Two things dawned on me that day. First, I asked why did my mouth not hurt until I saw I was insured? Secondly, when I was falling, I did not feel like a dead weight, but I felt like I was flying – weightless.

Because of that incident, I came to realize that there was some truth to the saying what you do not know, can’t hurt you. But it also gave me insight into what Einstein was talking about. In the middle of a free fall, you feel weightless as if gravity has canceled itself out. Actually, Aristotle first tried to reason that a heavy object will fall faster than a light object in a free fall. He was incorrect. Galileo was the first to actually get it right. He realized that a falling body picked up speed at a constant rate.Galileo also made the observation that in a vacuum, all bodies fall with the same acceleration. That was a truly astonishing idea. That experiment was carried out on the moon with a hammer and a feather. They both fell to the ground at the same time.

Yes, these things influenced me in seeing what I called the Geometry of Time in how and why do trends unfold and what are their durations? Was there a constant force at work, or were there patterns of time within time? This is an extremely complex subject. Far too much for a blog post. I will publish that work in 2020.


Understanding the Energy Model



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,

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.


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?


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.