Some people are confused by what I mean when I say that rates will rise as we move into the sovereign debt crisis, which will pick up steam in 2017 moving into 2020. We are NOT talking about central banks raising rates; we are looking at the FREE MARKET. As people realize that government debt comes with a risk, capital will begin to shift into the private assets. The market will not buy all the government debt that appears ready to explode. With central banks moving negative on short-term rates, smart money will wake up and flip into equities. If equities break-even, that is better than a guaranteed loss in government bonds. In Japan, the 10 year rate just went NEGATIVE so you want to park money with the government for 10 years and pay them to hold it?

Plus, the risk with government bonds will be that they can convert even short-term paper, of say 90 days, to 10-year bonds. Governments have done this before. As banks begin to get in trouble again, smart money will try to get off the grid. Banks will have to pay more for money as those keeping money in banks move out.

The FREE MARKET will force rates higher. Sure, central banks can keep short-term rates NEGATIVE as long as they buy the government debt. But this cannot continue indefinitely. The FREE MARKET will always win. This is how governments fail. The game remains on as long as there are bids at their auctions to sell new debt. What happens when there is NO BID? That is how the FREE MARKET will raise rates. Smart capital will move from public to private debt and equities in addition to gold and real estate on a VERY SELECTED basis.

The Cycle of War turned up in 2014. We have seen an escalation in international war (Russia-Ukraine) and in the Middle East while civil unrest spreads everywhere. This trend will pick up also in 2017 and move into 2020.

COMMENT: Mr. Armstrong, I attended the Berlin Conference and I must say, you told us to expect a move between the Benchmarks in gold, and that the first quarter looked to be a countertrend move. You seem to be able to map out the direction of markets all the time. I am still working out the best way to read the arrays. But I have to ask. Why have you not been given the Noble Prize with such a long track record that is unbeatable?

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REPLY: The fact we can forecast any event to the day PROVES that markets are by no means RANDOM. Now, lets begin with that statement and follow it through. If markets are NOT random, then the implication for government, economics, fund management, and all social sciences are actually incorrect sciences if you lower the real meaning of that word to be just opinion. This means central bank manipulation cannot succeed. It means government cannot control society under the Marxist-Keynesian theories, and it means that low and behold Adam Smith was correct after all. Giving me the Nobel Prize for proving so much is seriously in error, would be tantamount to a real scientific revolution. I think we are not ready for that. We have to crash and burn FIRST. Then perhaps in the aftermath someone will say – hey; let’s try something different. The downside of humanity is we want someone to be in charge. That is our own careless mistake in history.

The degree that those in power BELIEVE in the ability of the power to control society by merely writing a law is identical to desperate goldbugs who still write and have dedicated their life to try to prove me wrong on anything to justify being wrong themselves for 19 years from 1980 and 5 years from 2011, besides the fact the Dow rose from 1,000 to 18,000 since 1980 and gold cannot even exceed the 1980 high adjusted for inflation. They still write with pathetic nonsense demonstrating that no matter what you show them, they will NEVER change their mind. This is exactly the same as politicians. Nothing you do to show them they are destroying the economy to change their mind, creating massive unemployment among the youth, and the negative interest rates are undermining pensions and wiping out the elderly. There are those who, as Smith states, are hopelessly lost committed to their self-interest and REFUSE to ever see that they are possibly WRONG. This is why markets must crash and burn. It is the ONLY way to promote change.

Now with respect to the arrays, we are in the process of preparing a workshop series. But to make it as simple as possible, just focus on the top line which is the sum of 72 models. The plotting of the bars is proportional to that time frame. As the time moves forward, one bar which may not have been so pronounced, will suddenly rise. This is because the plotting is relative to the highest bar in that time segment. Where the highest bar may have been 25 hits previously and now the highest is only 10, it may appear to now be also at the top. We are looking at reflecting the count so you can see this is proportional charting, not relative to some fixed standard.

The change in the color reflects only direction. Here we see the 8th, a change for the 9th, and then the 12th. If we break the low of the 9th and close lower, then it is likely that 3 day trend will be to the downside. Exceeding the high of the 9th and closing higher would imply the risk is a 3 day rally into the next target on the 12th. These bars reflect the sum of all models which are “turning points” rather than a specific high or low given there are cycle inversions. This is typically determined by other models reflected in the text written by the computer.

We are on the precipice of what can  only be described as rising systemic risk for all markets. The Fed is now hinting that banks should prepare for NEGATIVE INTEREST RATES and this insanity of following the crowd is undermining the entire world economy. The increasingly unstable footing that we find ourselves standing upon is reflected in widening credit spreads demonstrating that CONFIDENCE is indeed collapsing. The EU Commission will no longer classify government bonds in bank balance sheets as “risk”. Banks would also have government bonds on par with “equity” yet government bonds have proven to be risky and are inferior to what would in some financial institutions result in an increased capital requirement. Turning to Goldman Sachs, we see the so called world’s greatest trader closed out its long-USD trade against a basket of Euro and Japanese yen with a potential loss of around 5% which is being bantered about on the street showing they too got this all wrong. This early 2016 destabilization is stopping out short gold positions but not replacing them with any buying conviction while the Euro trade of long Italian 5 year against short German 5 year has also turned into a blood-bath as the Euro finally rallied begrudgingly to reach our first resistance target in the mid-113 area.

Global economic growth has been anemic at best in the States but it is clearing turning down since 2015.75. This new world order of NEGATIVE INTEREST RATES is so insane and focused solely on trying to stimulate borrowing, it is undermining pensions and the elderly creating an economic storm of the century on the horizon, which is far worse that the Great Depression of the 1930s. Even the Japanese 10 Year bond has gone NEGATIVE demonstrating the total collapse in CONFIDENCE. Why you ask?  Because this time the defaults engulf all governments and at all levels. Like a drunk who just won the lottery, all is always lost in just a matter of time.

Bankers in German and Italian banks are looking rather pale in the face. The question is will the ECB bailout Deutsche Bank or let it fall? They will probably blink and this will be part bail-out/bail-in. They have no way out of this mess created by the Euro without surrendering their own power. We are looking at a European credit crunch beginning in the periphery and spreading to the core just as we are looking at emerging market debt imploding and spreading to the rest of the world. The Fed now sees the external threat as systemic and is considering abandoning domestic policy objectives for international policy objectives precisely as they did in 1927 which created a major crisis.

European Banks are in a real crisis. They have been decimated by fines and trading trying to mimic their New York competition without the same expertise. Then they had to use Euro debt of member states as reserves. Next came the rising taxes and the push to enforce taxation which has seriously harmed the European economy. Add to this toxic brew, the stupid sanction of Russia which seriously reduced trade from manufacturing to agriculture. We have the collapse in commodities which has added to the bad loan nightmare. Even the biggest oil companies like BP are clueless when it comes to forecast their own production and have posted the worst numbers in 20 years. Now stir in the collapse in the Euro, and voilà: we have the banking crisis extraordinaire.

While Deutsche Bank’s co-CEO John Cryan has come out trying to quell fears about the bank’s stability stating that the bank’s balance sheet “remains absolutely rock-solid” just on Tuesday, investors are growing very nervous about the health of European banks as a whole. Now comes the collapse in oil prices and that means only more bad loans ahead.

Deutsche Bank’s stock has fallen 37% so far this year. Our two charts illustrate that the share price has fallen below the record lows of the 2007-2009 crisis in terms of dollars. This does not bode well for the shares in Euro. The credit default swaps on Deutsche Banks have sky-rocketed show that the cost of insuring Deutsche Bank’s debt reflects the bulk of investors of the future.

The computer has been warning that 2015 was the 13th year up from the 2002 low in the stock market following the DOT.COM Bubble. That low was rather significant for many markets have yet to exceed even that 2000 nominal high such as in France. This has warned, as was the case in Gold from 2011, that a correction became possible. However, simultaneously, we see the collapse of Socialism on the horizon and this does not speak well for the markets from a traditional pattern expectation.

The 2002 low which followed the Economic Confidence Model was rather significant. Therefore, the computer’s warning that a false move could unfold at this time following a 13 year high was indeed something to pay attention to. On the way up from 2011, we warned that the Dow would lead and then pass that position to the S&P500. That took place as we entered the 13th year. We also see this lead unfolding on the way back down.

We are still witnessing the traditional reaction here as if this were just another normal change in long-term trend. Gold has rallied at last reaching the first important resistance in the 1208-1209 range as if the collapse in the stock market will bring about the end of the world. Short-term rates are still imploding as government are clueless on how to manage the economy. They are blind to the impact of negative rates and are trying by sheer force to “stimulate” borrowing when there is no confidence in the future as demonstrated by the polls with Trump and Sanders in the lead against career politicians. All this insanity is doing is collapsing pension funds and wiping out the savings of the elderly for what? To get people to spend and others to borrow to create small businesses to hire the unemployed youth as you hunt desperately for money to tax or confiscate?

This is the classic FALSE MOVE that will get everyone off-side in preparation for the collapse in government as we head into 2017, which will be the year from political hell. In order for gold to rise and everything to crash, there is just no possible scenario one can find in history to support such an outcome. The propaganda of the gold promoters who always have some conflict of interest being involved in selling or mining gold, is really indistinguishable from some religious cult handing out pamphlets or flowers at an airport. There is no objectivity in this analysis whatsoever.

While they tout the German Hyperinflation and the Theory of the Quantity of Money being the key to inflation, they remain confuse d in their thoughts and miss the entire point offered by history. There is a cycle to absolutely everything from your brain waves and the beat of your heart along with mood swings to the seasons and the manner of how light and sound even move with the ultimate cycle of life – we are born, we live, and we die.

The entire point of the German Hyperinflation was the collapse in the confidence of government. That was the character of the wave which peaked in 1929.75. We called it the Roaring ’20s. The confidence resided with the private sector and distrust of government was the hallmark of the era. The Revolutionary government defaulted on the national debt of the former government so nobody trusted government or banks. They were reduced to printing money for nobody would lend then on cent.

The net result of the German Hyperinflation was NOT that only gold rose in value, but ALL assets rose in value. In fact, the currency which replaced the hyperinflation paper was backed by REAL ESTATE, not by gold. This incident offers a guide to what we face on the road ahead. It shall NOT be a world where only gold rises at the expense of everything else. We are headed into a major crisis where the only thing that survives the transition to a new world currency that is coming as early as 2018, but probably by 2020, will be private assets. Real Estate can survive but its lack of mobility is a disadvantage. You never want to own property in the path of potential war. Antique cars have done well, but here too, they are less movable than art, coins, or stamps. After World War II ended, all the rare coins and stamps of Europe were located in the United States as evidence of the fact that they served a purpose of moving wealth from one continent to another.

As we stand on the edge of a cliff thanks to lawyers who want to be politicians and assume they can rule the world by just writing laws to benefit themselves and their friends, we face a collapse in the CONFIDENCE of government that necessitates first the FALSE MOVE to get everyone off-side, then we will swing in the opposite direction in what we call the SLING-SHOT move. This is driven by the fact that when people realize government has totally been incompetent, then capital will turn and begin to move to anything tangible. This is the lesson from history we must understand rather than get all caught up in the bullshit that will be spewed out by the talking heads and gold promoters. So get ready. This is going to be the ride of your life, for indeed, getting this right may separate princes from paupers besides being the time that tries men’s souls.

This is NOT a time for conflicts of interest tainting analyst. All the Investment Banks paid big fines for putting out false information on DOT.COM stocks they had interest in. You CANNOT be an analyst if you have a vested interest in that which you claim to be an analyst. It is just humanly impossible even if you have the best of intentions. It is traditionally called in the industry – TALKING YOUR OWN BOOK.