If there was ever any question that this is a bond bubble with a 5,000-year low in interest rates, the final bit of insanity just took place. Italy managed to sell its first 50-year bond last week as investors were betting that the European Central Bank might soon add ultra-long debt to its asset-purchase stimulus scheme. Draghi has said he would do whatever it takes to stimulate inflation. Hence, speculators are betting they can sell these 50-year Italian bonds to the ECB for a profit.

The speculation was so great that about 16.5 billion euros in orders were received for a bond issue that was about 20% of that amount. They are not considering the risk that the upcoming referendum might overthrow Italy’s prime minister. This is speculation gone completely mad. These insane speculators have already bought 50-year bonds from Belgium, France, and Spain as well. Many of these same speculators have also signed up for Ireland’s 100-year bond in March.

QUESTION:

Marty,

In your September 8 post you said “The Reversals have done a good job and this is actually an appropriate example of how to use them to stay out of trouble. Gold exceed the 1362 Month Bullish intraday moving up to 1377, but then failed to elect that number only to go crashing back down. On Friday, we had the 1311 Weekly Bearish. Gold fell to 1305 and then failed to elect that number only to rush back to the top of the channel.”

It seems the same is true on the quarterly level as well. Gold exceeded the quarterly bullish at 1347 then failed to elect on September 30. Now today it goes down hard. Fascinating to watch your reversals work. I have been confused over the last months as I anticipated a 3 month reaction that has stretched to several months. it makes sense now since this was a 3 quarter reaction. Is that what you mean by everything is fractal?

Thanks for the ongoing education. Sometimes hard to comprehend but worth the effort. Looking forward to the next video. Do you still see a Possible November high or has the pattern changed.

ANSWER: This is why we look at time on five major levels. Reactions are limited up to three units of time and that runs up to yearly. For example, even if we look at the Great Depression, you will see a fall in the Dow from 386 to the 42 area. That took place in 34 months of from September 1929 to July 1932. It is confined to the three-year rule. Because it fell so far, it could not continue.

The Nikkei turned into a bear market passing that three unit time interval. Then the minimum became five to six years, and the next is 10 to 13. Go beyond that and you are off into 23 to 26 years. So it is a factor of how far you move within a given time period.

Even in gold, we bottomed on the benchmark (a date that we gave years in advance) in December and then elected the first Quarterly Bullish at the end of 2015, signalling a bounce. Gold rallied but could not close above the Monthly Bullish, and then it crashed but could not exceed the Quarterly Bearish. If we close below our Yearly Bearish Reversal at year-end, it will get interesting indeed.

So we have the combination of a three-year drop into 2015 from the highest closing, but a three-quarter reaction rally.

QUESTION:  Any update or longer term array for the GBP? You said they are attempting to hold the USD’s advance back any chance there’s also attempt to punish the UK with an attack on the currency?

LM

ANSWER: Of course. Europe has a different mindset when it comes to currency. They view the currency as if it were a share and the high the better. This is because after World War II, politicians used the rise in their currencies as PROOF they did a good job. When I was first going to open an office in Europe around 1983, I met for lunch with the head of one of the top Swiss banks in Geneva. I proposed various names and asked his opinion. They were all something like European Advisers. He asked me to name one European analyst. I was embarrassed for I could not. He laughed and and said there were none. He then said that is what everyone used our firm because he said I did not care if the dollar rose or fell. He explained, all European analysts would always be bullish their own currency. Indeed, with time I came to see what he said. It was political and to say your currency would collapse was treason.

So the ECB has been selling British assets. There is a concerted effort from Brussels to “punish” Britain for in their mind that will deter others from leaving. What they fail to grasp is a lower pound will SAVE Britain and it is Europe that will fail. Lower the pound and their exports are now cheaper so much so they can afford the tariffs and still be competitive.
The pound has broken back below the Break-Line from the US Civil War when it reached its historical high against the dollar. That was at 13755 for 2016. Crossing that line meant the decline was back in motion. This is a good thing for Britain. It was Britain who was the first to abandon the gold standard ending deflation. It was that end result that George Warren used to convince Roosevelt to devalue the dollar against the advice of his Brains Trust who argued like Merkel today for deflation.

COMMENT: Marty; Your forecast at the last WEC that the pound would break the 1985 low seemed extreme. I have to say as I watch it this morning, your computer picks every trend around the world with remarkable precision. You are providing a unbelievable learning lesson teaching us how the world really works. I understand why the press never quote you. They cannot afford to reveal how accurate your computer really has been. You are changing the way analysis is even done.

Good on you. See you in Orlando

DB

REPLY: There is no such thing as random walk. Sure, analysts can be lucky and get a few calls right here and there. Nobody can forecast every market correctly from a personal gut feeling view. The collapse in gold is tied also to the dollar as just one factor. I hope people are starting to see that the world is all connected and NOTHING takes place in some random fictional bubble. This is not a drunk strolling through the park randomly so you cannot predict where his next step will take place be it left, right, or even backwards. Of course they will not quote me. Why? If everything is connected, then the bigger question becomes; How can politicians run promising anything? Hillary can no more deliver what she promises. It’s all a joke. If Trump cut corporate taxes to 15%, then companies would bring their cash home. I testified on that before Congress and explained they had to match the best tax rates of 15% as in Hong Kong and the corporations would all return. Just to be invited to testify before the Ways & Means Committee is credibility. You do not get asked just to speculate or say “I think”. We had over $3 trillion under contract globally for strategic advice. I think we had sufficient experience to testify how corporations would respond. Everything is connected. You cannot raise taxes with no regard for the competition. If one car dealer sells the same car at full sticker prices and one 5 miles away sells it for 5% less, people will move to the better deal. This is human nature and it is how the whole world functions. Only a fool would deny this fact.

We are getting that pop in the dollar now against the Euro, Yen, and Sterling. This has been what the Fed is frightened about. There is very little out there in terms of color for the immediate crash in the pound with the typical hard line BREXIT talk as if Europe can stand without Britain, and the excuse is razor thin liquidity combined with the the old “fat finger” explanation. But the smell of war is in the wind and the dollar always rises under such conditions. That is just one factor. Then we have the insanity of Draghi running the ECB and the French along with the German elections appear ready to toss out their politicians and make a hard turn right.

Mainstream media is still conspiring with the politicians against the people everywhere. They did so in Britain and they are doing it right here in the USA. Hillary has vast sums of money and that does NOT come from the little guy. Trump has raised more money from the little people than Hillary. That says it all. Yet the press is desperate to get Hillary in office for they are linked with the politicians to destroy our society out of their own greed. They are by no means independent.

We can see that the Break Line channel from the BREXIT move has been excellent of showing the resistance. Today, the bottom of the channel lies at the 1.19 level and we have seen the pound collapse to 1.1860 so far. It fell nicely to the technical support. The main support lies at the 1.05 level and it looks pretty solid that we will elect two yearly bearish reversals we will discuss at the WEC. As far as what Socrates has been writing on the long-term, the pound sterling simply has never elected any yearly buy signals after the 1985 low so it was only a reaction rally.

“Noticeably, my long-term view forecast recognizes that the major low in British Pound Spot took place back in 1985 completing a 39 year decline, but we have seen lower highs with each thrust upward leaving the major high intact as of 1959. We have not elected any Yearly Bullish Reversal from the major low of 1985 warning that we remain in a bearish long-term trend. Only an annual closing above 24280 would signal a change in long-term trend. There has been a post low rally after 1985 moving upward into a key high during 2007. Nonetheless, the market has undergone a reaction back to the downside for the past 8 years. This has warned that the overall trend of this market remains bearish since it has been unable to make higher highs. There remains a long-term risk of a decline extending into 2017 or as far out as 2020 in real terms adjusted for inflation. Unquestionably, there remains a risk that we could see a complete monetary reform as early as 2018 going into 2020 or the latest 2032 insofar as a change in the currency base system. This is likely to follow a Sovereign Debt Crisis which should begin to erupt by 2018.”

The Global Market Watch in 2012 warned that the “Rally will fail then sharp decline Possible”. Since the beginning of the first quarter 2015, the GMW has been warning “ABOUT TO CRASH” and then the second quarter this year it warned a “key high waterfall event” The whole picture has been bearish. This is what the GMW is all about. It is an objective warning system and when you see all levels screaming at you like this, only a foll would be on the long side.

QUESTION: Numerous people have asked:

Does the FED actually also see these trends coming (strong US dollar, bond crash) ?
K.

ANSWER: Yes. The Fed has sent people to the major banking houses and told them outright that their models are wrong. They have been telling them quietly that there may not be a rush to quality being bonds. Moreover, the selling of US Treasuries by some central banks has been an effort to try to prevent the dollar from rising. China’s holding of US Treasuries has declined to its lowest level in several years, but it is having little effect causing markets to simply coil.

QUESTION: Marty; You said at the Berlin Conference that failure is not the opposite of success. It is part of success. I found this intriguing. Is this part of the training sessions for this year’s WEC?

ANSWER: Yes. The way we learn is by making mistakes. If you claim to have never been wrong, then you have never learned anything. Mistakes are part of life as they are in trading. The trick is to survive your mistakes to make it to the next round. There is no such thing as failure — only learning lessons. This is why I also say we must crash and burn. It is impossible to argue to governments that they will fail as long as they have the power to try to defend themselves. Only a crash and burn provides an opportunity for change to emerge. This applies in politics as well as trading.

QUESTION: Hi Martin
I am a follower of your blog.
I have a question on your post “Financial Capital of the World & Its Migration” dated 30th sep 2016.
I was looking at the graph where Y-axis indicates the scale of Economic Progress (in terms of % of world GDP) against time on X-axis.
The decline of China and India have been like a jump off the cliff. Why is it that it is not so in case of Europe?
I am guessing some component of your model is able to hold it up .Could you pls explain.
Again many thanks for your education.
AB

ANSWER: The reason for this is that we have treated Europe as a whole. The devil is always in the detail. The beginnings of the Portuguese Empire can be traced to July 25, 1415, when the Portuguese Armada set sail for the rich Islamic trading center of Ceuta in North Africa. The economy of Portugal was centered in trade, raw materials, and related activities within its vast colonial possessions, mainly in Asia (spices, silk, dyes, porcelain and gems), Africa (ivory, timber, oil and diamonds), and South America (sugar cane, dyes, woods and gold). The country, with a transcontinental empire with plenty of natural resources and vast unexploited areas, was among the most powerful nations in the world. Spain really became a country only in 1492 with the merger of two crowns by the marriage of Ferdinand and Isabella.

From 1580 to 1640, the crown of Spain was also the ruler of the Portuguese Empire and its wealth. This was accomplished through a dynastic union referred to as the Iberian Union. The Iberian Union opened to both countries a worldwide span of control. Portugal dominated the African and Asian coasts surrounding the Indian Ocean, while Spain held the Pacific Ocean and both sides of Central and South America. Therefore, Spain then displaced Portugal as the financial capitol of the world.

The Spanish Inquisition led to the flight of the Jews to the Netherlands. They took with them the accounting and trading skills. This is why Amsterdam became the financial capitol of the world, equipped with the first bank as well as insurance. This is where the modern financial markets actually began to take shape.

The English Civil War and the hatred of the Pope and Catholics led them to invite William of Orange to become King of England. He brought the Dutch way of doing finance to Britain in 1688, and that began the process of shifting the capitol to London. That lasted until 1914, when it passed to the United States following World War I.

QUESTION: Hello Martin and thank you for all your fascinating and informative emails.
I’m probably naive and unrealistic (if everything goes in cycles maybe it’s just the way of the World) but I just read your email about Sears and felt pretty sad to see something that survived well for a long time and provided so many with jobs and goods for so long seem doomed.
Do you ever feel like that and can’t you help such companies? Would they even listen? Should you help them or is this just something we all have to accept is a natural demise?
Love to your mum too and a belated happy birthday to her. She is a star. It’s lovely to see you’re close and she looks so good. You must be taking good care of each other,

CP

ANSWER: I have been called into many board meetings over the years. I have watched this process first hand. Typically, companies must simply die just like any biological entity. I began my computer engineering training at RCA (Radio Corporation of America).

In 1901, the Victor Talking Machine Company was formed. In 1919, RCA was incorporated to control US patents of General Electric, AT&T, Westinghouse, United Fruit. The same year, David Sarnoff became the General Manager of RCA. In 1926, NBC established by RCA (50%), GE (30%), and Westinghouse (20%).

Meanwhile, the Victor Talking Machine Company of Japan, was founded in 1927, as a wholly owned subsidiary of the Victor Talking Machine Company of the the USA. Its purpose was to manufacture and market phonographs in Japan. The Japanese Victor Company (JVC) sold minority shareholdings to the Mitsubishi and Sumitomo financial groups. JVC was thereafter operated as a U.S.-Japanese joint venture. However, Victor was purchased in 1929 by the Radio Corporation of America and renamed RCA Victor. RCA bought Victor Talking Machine for US$154m going into the top of the bull market in 1929. As the Great Depression began, the government began anti-trust investigations of RCA during 1930, which was followed by General Electric and Westinghouse selling their stakes in RCA in 1932. Then in 1941, the Federal Communications Commission Report on Chain Broadcasting recommended that RCA dispose of one of its networks.

From 1965 onward, RCA sought to become a major conglomerate. In 1965, RCA bought Random House, and then two years later in 1967, RCA bought Hertz Rent-a-Car. Then in 1969, RCA bought Cushman & Wakefield followed by FM Stamper, renamed Banquet Foods, in 1970. Then in 1973, it purchased Ballantine Books, once again going into the peak of the market in 1974.

With the Crash of 1974 and the sharp economic decline into 1976, RCA sold in 1976 Cushman & Wakefield to Rockefeller Group. Its fortunes had peaked with the bottom in book value of the Dow Jones Industrials, which took place in 1977, which is precisely a 51.6-year cycle wave from its birth in 1926. In 1980, RCA then sold Random House to Advance and Banquet Foods to ConAgra and turned around and bought CIT financial group. Then in 1984, RCA sold CIT to Manufacturers Hanover Bank for US$1.5bn. Then in 1986 RCA-Victor (RCA’s music arm) was sold to Bertelsmann and the following year Thomson bought RCA’s consumer electronics operations. General Electric acquired RCA in 1986 since it owned NBC and it sold off all its remaining operations. Its total life from inception was 67 years. From its peak in 1977, the fall was just 8.6 years.

The life cycle of corporations are very much like a biological lifeform, as is the case with governments. The inventor has the creativity. That breathes life into the entity. When that person dies or is forced out, like Steve Jobs, the company tries to be “institutional” and proper. The board is then run by the lawyers and bean counters. They lack creativity. They will then move into the acquisition phase and buy startups and other companies to expand their business. They lack the genius of creativity. They will typically buy the high and sell the low like everyone else because they act based upon the immediate trend. This leads to over-expansion and then comes the decline and fall.

Can such companies be saved? Only if the board listens. They typically will not since they lack creativity and any comprehension of the business cycle. They can rarely make the leap forward for they are always chained to the past and what they think is the proper way to run a company, which is always wrong.