Once the Euro closed above the Weekly Bullish Reversal last week, we have rallied strongly simply on comments from Draghi that a strong Euro is good. It is hard to contemplate his reasoning since this increases the debt burden of Southern Europe and reduces German export competitiveness. His comments that changing police will come September. So we have the 99% bullish sentiment acting still in anticipation.

We have exceed the 2016 high of of 11616 intraday reaching 116574. The Quarterly Bullish Reversal stands at 11694 and this is the key area to watch. Exceeding that allows the rally to reach the Downtrend. With this middle target on our objective reached, technically we have an outside reversal to the upside which has cleaned out the stops. This is setting the stage for the Monetary Crisis that begins in 2018. The higher we move in one direction, the worse it swings in the opposite.

We times timed the Frankfurt seminar with this move as well as our meetings with institutions over the next two weeks.

The key to the future is understanding (1) the past and (2) how everything functions. Sure there is a risk of a Dark Age after 2032. Hopefully, we can learn from the past to push things in the right direction at least for once. For whatever reason, the people who like to run government are the least qualified. They seem to be people who just like to order others around.

Since they have typically never had a job in the real world, they remain clueless about how to really deal with society no less the economy. This last crisis is the classic example. We have people in power who do not understand the past no less how things really function. As a result, someone comes up with this idea of lower interest rates to stimulate demand and NEVER even once do they review history and asked – Hey; did this every work before?

I find it truly amazing that I can even write about how lowering interest rates failed to stimulate the economy for almost 10 years in Europe, and yet people want to argue that somehow I am wrong. They never review the past and offer only opinion often taught in school as if that makes it absolute doctrine. Interest rates NATURALLY drop in a recession/depression because demand declines as people lose confidence in the future.

You cannot reverse a recession/depression by lowering interest rates. Until people BELIEVE they can make a profit in the future, they will never borrow as long as the horizon appears dark as dismal.

This solution from the 2007-2009 crisis of lowering interest rates has undermined the Pension funds. This has set the stage for the collapse in government as pensions being to fail first in the state/province level of government and municipalities.

I’m sorry. This is not Nobel Prize winning theories here. All you have to do is just open your eyes, shut your ears to propaganda, and look at the history. Just ask what happens and let the charts show you without political bias.

Throughout history, the solution to every crisis sets the stage for the next crisis. This is what happens when we have unqualified people running the joint.

The key to making money to secure your future is to shed all bias and just let the markets dictate the outcome.

A number of people have asked about Elon Musk’s reference to us already being cyborgs and the possibility of humans being transformed into house cats dominated by Artificial Intelligence. I have been involved in developing AI since the 1970s. In coding the Socrates systems, I have not found it to turn me into a house cat. To the contrary, I have learned much more about the world using the systems.

Back in the early 1980s, I appeared on FNN (Financial News Netwrok) which was a finance and business news TV network in California that operated throughout the USA until it was bought by and merged with CNBC in 1991. I appeared on air with Walter Bressert and the computer forecast was that the British pound would fall from $2.40 to $1 going into 1985 following the Economic Confidence Model at that time. That forecast was done by the computer although I did not explain the scope of Socrates back then because it was too far ahead of the curve. The computer also forecast that the British economy would divert from Europe and move counter-trend aligning itself more with the United States. That forecast it made back in 1981. I had to develop a natural language in order to speak with it because I thought that forecast was insane and wrong. When I coded the ability to inquire how it was making its decisions, that is when it began to teach me. It picked up the discovery of the North Sea Oil fields which began to change the UK from a net oil importer to self-sustainable. The Gullfaks oil field was discovered in 1978 with the Snorre Field in 1979, followed by the Oseberg oil field and Troll gas field which were also discovered in 1979. The capital flows had been altered and then it made sense.

The idea of interfacing humans with a neural net is possible, but this is clearly something that would need to be approached with caution. It is once thing to have a unit in the house like Amazon or Google where we can ask questions and something that taps into your brain. The danger there is who control the neural net. Government could then use the net to control people. I would never submit to something of that nature.

Artificial Intelligence cannot take over the world with its own evil mind. My fear would be that someone steps in to direct it to control various things or people for their benefit.

We are getting close to unleashing Socrates. The hold up has been in the delivery rather than in the analysis. We have had some problem with pushing the results up to the cloud, which we hope to solve. The Pro version wrote this as of Friday concerning the Dow Jones Industrial Index. Note that while we are making new highs, we are losing momentum and breaching the bottom of the Breakout Channel. The support has been rising sharply so caution is now warranted. Note also beware the week of 07/24.

ANALYSIS UPDATED AS OF THE CLOSE OF  Fri. Jul. 14, 2017: This market has been making a new historical high this month on Fri. 14th at 2168153. Closing support on a weekly basis now lies at 2133300. A weekly closing below this level will signal a short-term correction is beginning. From a technical trading risk perspective, long positions should be exited if this level is broken on a weekly closing basis.

From the view of a position trading perspective, the market has exceeded the previous high made back in June at 2153503 reaching 2168153. So far we have a very dramatic event breaking last year’s low 1545056 and exceeding last year’s high of 1998763 making and outside reversal to the upside. The technical resistance stands at 2172761 with technical support resting at 2148041 and 2100653. Any long position should use a protective sell stop on a monthly closing basis at 2055344. Remember this is just a trading suggestion given it is merely a trading observation rule. Buy or sell signals take place on Reversals and Cycles.

QUESTION: Dear Martin,

You cannot forecast volatility in any of its flavors without interfacing TIME in every other aspect of this dimension. Creating flat models like a stochastic take one aspect of a market and then attempts to extrapolate the future based upon this single tool only to fail. We have a stochastic model you can plot and the interesting thing is it is never consistent since sometimes it’s peaking in advance to a turn and at other times after the turn. They never forecast a flash crash or anything on that nature. This Fourth Dimension is extremely complex. Far beyond any one dimensional model can map.

Even those claiming to be using the K-Wave cannot make real forecasts. The basis of Kondratieff’s argument came from his empirical study of the economy’s performance of the USA, England, France, and Germany between 1790 and 1920. Kondratieff took the wholesale price levels, interest rates, production and consumption of coal, pig iron, and lead for each economy. He then sought to smooth the data using an averaging mathematical approach of nine years to eliminate the trend as well as shorter waves. Kondratieff thus arrived at his long-wave theory suggesting that the economic process was a process of continuous waves of boom and bust.

The problem with his data was that it properly reflected the beginning of his study. But as the Industrial Revolution took place, agriculture, which was 70% of the economy in 1850, fell to 40% by 1900 and eventually to 3% by 1980. His model failed because there was a cycle to the economy as well which he did not take into account. We moves from a commodity based system, to industrial, and now to primarily service. As we move further down this road, we can see that economic growth has declined for government has growth too big and is now consuming 40% of GDP compared to less than 10% at the beginning of his work. Then we now have the internet displacing jobs in stores (service industry) just as the invention of automobiles displaced the horse and buggy. There is a cycle to change as well and this is absent from the K-Wave.

Under Marxism, seizing control of all private assets was supposed to eliminate this boom and bust cycle. Kondratieff suggested that changes in technology, wars and revolutions, and the emerging of new countries as well as the surges in the production of gold was the cause of this business cycle. (see his 1935 English Translation not someone else’s commentary on his work)

Anyone claiming to be using the work of Kondratieff to forecast the business cycle is most likely creating a smoke-screen since we can even see from the chart, that his original wave varied greatly both in time duration 47 to 63 years, as well as intensity. Moreover, Kondratieff himself explained the cause was shifts in production, war, and great booms and busts in the discovery of gold. So the K-Wave offers no reliable method to forecast the economy, yet it stands as a testament to the existence of a complex business cycle.

Kondratieff was by no means the first to discover the business cycle. There were many others trying to investigate the complexity of the business cycle.

Nevertheless, Kondratieff explained that the cause was complex and not a single thing. Any attempt to create a one-dimensional model will fall flat on the drown.

The pro-version should be available by September. I am pushing the staff as hard as I can.

This upcoming seminar in Frankfurt Germany will deal with both the short-term and long-term. This has been the Year from Political Hell, and it will not end until after the German elections. With the ECB finally throwing in the towel admitting (but certainly not publicly) that nearly 10 years of low to negative interest rates has utterly failed to reverse the deflation. Now with the expectation of higher interest rates, the optimism is returning on schedule in Europe as virtually 99% are touting that deflation is over and let the good times roll.

Of course, the greatest error with currency is the general public view it as a share price. They assume that the higher the Euro the stronger the economy becomes. Yet historically, the exact opposite is always true because currency is the medium of exchange which sits on the opposite side of the scale with tangible assets. Deflation is when assets decline because the currency rises in purchasing power.

When we look at the historical highs in the U.S. dollar, we can see the peaks are not marked by economic booms, but the economic depressions/recessions. The first peak in the dollar was World War I, then 1931 and the Depression, then 1949 post World War II, then 1985 and the steep recession that prompted the birth of the G5.

The rise in the euro and the decline in the dollar is part of the set-up before the Monetary Crisis begins in 2018. You must always swing to the opposite direction of the eventual trend. The lowered dollar is EXACTLY what Trump wants to increase US exports in theory to create more jobs. A higher dollar will reverse all the aspirations of Trump.

The real question become which target can the Euro reach before reversing the trend in 2018? Are we looking at the 116 level again or 125-128? This will be the topic for the upcoming Frankfurt Seminar on July 22nd. We reached our minimum target of 114.

QUESTION: Mr. Armstrong; Are you aware of the 1988 Economist article predicting that in 30 years from then we would all be using the same currency?  That is strangely your target of 2018 when you have warned that the Monetary Crisis will begin then. I met an attendee from your 1985 WEC there in Hong Kong. He said you gave that date of 2018 way back at that conference. Did the Economist take your work for that article?

PH

ANSWER: The Economist did not really make a forecast. They were just generalizing what might happen in 30 years from then. I do recall speaking to them back then, but I disagreed with the concept that everyone would be shopping with the same currency around the world. I was one of the people called in back in 1985 when they were creating the G5 (now G20) at the Plaza Accord. I had originally proposed back then that we adopt the SDR at the IMF as the new reserve currency.

After dealing with many governments at that time, it became crystal clear that this idea of a single world currency that people would be using in everyday commerce was not practical. It was at the Plaza Accord in 1985 when the idea of the Euro was born. This article in the Economist was inspired by this idea of surrendering monetary authority to a single government in Europe. We can see how screwed up the outcome has been. After working with governments in Europe and America, it was abundantly clear that a single currency that would be used in daily commerce by everyone would never exist without monumental collapse in governments and a new one world government. But that would not last very long as we see the rebellion in Europe against Brussels. It demands also the surrender of one’s culture.

This idea of a one world government where everyone willingly surrenders their sovereignty and culture to some central power is the stuff of movies. Here is a letter from the White House. The chief objection is universal. It requires the surrender of domestic policy objectives to international.

There is no possible way this is happening without the entire world collapsing and a single government emerges by FORCE. Politics as we know will could no longer function. Politicians argue vote for them and they will tax the rich and hand it to the poor. How can that take place in such a system? They could not promises nonsense against the global trend as they do currently. The policy would be determined at the central power and politicians would be subordinate in every country unable to offer anything to get elected.

I do not support the corruption that has engulfed the world. However, this idea that everyone will be using the same currency is a pipe-dream with no basis in reality for the amount of political change would require a bloodbath in revolution. It could NEVER unfold willingly with the political system we currently have. Even then, counter-revolutionary forces would emerge. It will not be just BREXIT, it will be countless civil wars against a central political institution.

The very best will be a single new reserve currency to replace the dollar. But every country would still need to retain its own currency because the business cycle cannot be defeated so while some countries benefit, others must suffer. The entire world cannot possibly have a trade surplus all simultaneously until we begin trading with other planets.

The Economist wrote:

Title of article: Get Ready for the Phoenix
Source: Economist; 01/9/88, Vol. 306, pp 9-10
THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.
–
At the beginning of 1988 this appears an outlandish prediction. Proposals for eventual monetary union proliferated five and ten years ago, but they hardly envisaged the setbacks of 1987. The governments of the big economies tried to move an inch or two towards a more managed system of exchange rates – a logical preliminary, it might seem, to radical monetary reform. For lack of co-operation in their underlying economic policies they bungled it horribly, and provoked the rise in interest rates that brought on the stock market crash of October. These events have chastened exchange-rate reformers. The market crash taught them that the pretense of policy co-operation can be worse than nothing, and that until real co-operation is feasible (i.e., until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.

…
The new world economy
The biggest change in the world economy since the early 1970’s is that flows of money have replaced trade in goods as the force that drives exchange rates. as a result of the relentless integration of the world’s financial markets, differences in national economic policies can disturb interest rates (or expectations of future interest rates) only slightly, yet still call forth huge transfers of financial assets from one country to another. These transfers swamp the flow of trade revenues in their effect on the demand and supply for different currencies, and hence in their effect on exchange rates. As telecommunications technology continues to advance, these transactions will be cheaper and faster still. With unco-ordinated economic policies, currencies can get only more volatile.
….
In all these ways national economic boundaries are slowly dissolving. As the trend continues, the appeal of a currency union across at least the main industrial countries will seem irresistible to everybody except foreign-exchange traders and governments. In the phoenix zone, economic adjustment to shifts in relative prices would happen smoothly and automatically, rather as it does today between different regions within large economies (a brief on pages 74-75 explains how.) The absence of all currency risk would spur trade, investment and employment.
–
The phoenix zone would impose tight constraints on national governments. There would be no such thing, for instance, as a national monetary policy. The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. The world inflation rate – and hence, within narrow margins, each national inflation rate- would be in its charge. Each country could use taxes and public spending to offset temporary falls in demand, but it would have to borrow rather than print money to finance its budget deficit. With no recourse to the inflation tax, governments and their creditors would be forced to judge their borrowing and lending plans more carefully than they do today. This means a big loss of economic sovereignty, but the trends that make the phoenix so appealing are taking that sovereignty away in any case. Even in a world of more-or-less floating exchange rates, individual governments have seen their policy independence checked by an unfriendly outside world.
–
As the next century approaches, the natural forces that are pushing the world towards economic integration will offer governments a broad choice. They can go with the flow, or they can build barricades. Preparing the way for the phoenix will mean fewer pretended agreements on policy and more real ones. It will mean allowing and then actively promoting the private-sector use of an international money alongside existing national monies. That would let people vote with their wallets for the eventual move to full currency union. The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.
…..
The alternative – to preserve policymaking autonomy- would involve a new proliferation of truly draconian controls on trade and capital flows. This course offers governments a splendid time. They could manage exchange-rate movements, deploy monetary and fiscal policy without inhibition, and tackle the resulting bursts of inflation with prices and incomes polices. It is a growth-crippling prospect. Pencil in the phoenix for around 2018, and welcome it when it comes