Posted originally on May 29, 2024 By Martin Armstrong
All those investigating cycles within the economy made a simple mistake. Kondratieff followed agriculture/commodity prices when agriculture accounted for 70% of the GDP pre-19th century. That only began to decline from 1850 forward, dropping to 40% by 1900 as the Industrial Revolution emerged with the invention of the steam engine. Moreover, aside from climate impacting the food supply, there were also wars. So the Kondratieff Wave failed to take into account all of the external forces.
If we extend the K-Wave 54 years from the commodity high in 1919, that brings us to 1973, which was close to the end of Bretton Woods in 1971 and the OPEC Oil crisis. Another 54 years from there will bring us to 2027. Therefore, this may be based entirely on commodities, but they were impacted by weather and war. Note that 2027 is the ideal target on our model for war derived from entirely different sources.
There is a cycle of industrialization as well. Rome began as an agrarian society and moved toward trade, which brought them into conflict with Carthage. Rome itself became more like New York and grain was imported from Egypt. As agriculture became more of an import, Rome blossomed like New York into the arts and culture. The shift toward industrialization also resulted in a decline in birth rates for children. Large families were needed in an agrarian society but not so much in a developed society – hence the family laws of Augustus.
The first known Clean Air Act occurred in 535 AD by Emperor Justinian in Constantinople. He proclaimed the importance of clean air as a birthright. “By the law of nature these things are common to mankind—the air, running water, the sea.” Even Cicero wrote about pollution in the ancient city of Rome. This went hand and hand with developed societies and urbanization.
Consequently, when looking at long-term cycles, a few hundred years is not enough data. If Kondratieff were alive today and based his study on the current system, he would focus on services rather than commodity-based economies. Agriculture has fallen to just 1.2% of the civil workforce, so we cannot follow K-Waves as the innovator intended.
Posted originally on May 29, 2024 By Martin Armstrong
All commodities, including gold, trade substantially differently than stocks or real estate. Pictured here is wheat back to 1200. Note that you see what appears to be a brain wave. Commodities trade differently because they are subject to nature. Manufactured items can be produced on a more regular basis. However, commodities are subject to weather, and even mining is subject to discovering supply.
Look at energy. The US was dependent on imports and was virtually self-sufficient from foreign production until Biden was appointed.
Here is wheat impacted during the Black Death. Two trends were clashing. There was a 50% drop in population, so demand dropped, but also there was a collapse in labor, so production declined. Prices rose because there was still a shortage of supply because land went vacant and that forced landlords to begin paying wages. There are always far more complicated trends involved in commodities.
War has also impacted commodities. But when gold was MONEY, it declined in purchasing power WITH inflation. When gold is a free market as present, it moves opposite to inflation because, yes, it too is then a commodity. Making gold money will NEVER prevent the cycles as illustrated above and it will decline in purchasing power with inflation that is in part driven by nature.
Consequently, even gold makes runs to the upside (bursts) that are largely catch-ups. It does not remain constant even against silver. Gold is the worst investment from an inflationary standpoint if you expect it to track inflation, for it does not and will not. Right now, we are in a cycle where CONFIDENCE has waned, and we will see gold rise with the stock market, but it trades far differently from stocks.
Cyclical analysis is all about defining WHEN such events will take place. Price is entirely a different aspect. The burst is just that – a rally that appears to come from nowhere playing catch-up because EVERYTHING has an international value.
Posted originally on May 29, 2024 By Martin Armstrong
The old idea that inflation is created by an increase in money supply has distorted the minds of many people. Inflation is caused by numerous factors for it is not a one-dimensional aspect. For example, say a bird flu has rendered half of the egg production to be worthless, which would send egg prices soaring. This would have nothing to do with the quantity of money. So, obviously, a decline in the supply of some service or commodity can also lead to rising prices. Supply and demand.
Then there can be cost-push inflation as we saw during the 1970s due to OPEC. The first OPEC price shock was October 1973 from where we should see the next low in 2016 (43 years later). The sudden rise in oil sent a shockwave through the economy, driving up prices because the entire economy had to readjust to higher energy. This was not the result of an increase in demand nor an increase in the money supply.
When gold was used for money during the 19th century, it fell sharply in value with each new discovery from California, Australia, and Alaska. Inflation rose because of a dramatic increase in the money supply, which is exactly what took place in Europe when Spain brought back ship after ship of gold from the New World. The sudden dramatic rise in the supply of money unleashed inflation, and during both periods, money (gold) failed to provide a store of value.
Steady, slow growth in the supply of money does not lead to inflationary waves. We find that major waves of inflation are often tied to waves of speculation, which differ with each wave moving from real estate, commodities, stocks, or bonds, constantly rotating over decades within a domestic economy and then this movement of capital takes place internationally.
Inflation is not a single one-dimensional aspect. It moves up and down between the rise and fall in the demand for private assets vs. hoarding and uncertainty.
Posted originally on May 28, 2024 By Martin Armstrong
Economics is well known for rather unrealistic theories based upon fundamentally unsound principles, such as the assumption that all things remain equal. Reality parts with academics whenever such assumptions are drawn to a foregone conclusion. However, greater false assumptions, which go unnoticed, lie at the foundation of so many theories in economics – primarily the assumption of linearity.
In our thinking process, we all are trapped by the Aristotelian sequence of logic – if X takes place, then Y must follow. Unfortunately, we think linearly and, as such, most theories seek to embellish this very basic assumption. The financial world honestly wants to believe in simplistic notions. Raising interest rates and demand will subside along with inflation is one false linear assumption. Man prefers to believe in linear relationships and systems because anything beyond two variables becomes far too complex for rational thought processes.
Man’s natural tendency toward linear thinking has indeed created many heated battles. The arguments between supply and demand-side economics is one such example. Given the assumption of a linear economy, demand-side economists argue that the economy can be controlled through the manipulation of government spending and interest rates. In effect, demand-side economics seeks to use the consumer (demand) as a club to beat capital over the head. Yet these same demand-side economists claim that supply-side economics benefits the rich at the expense of the poor. Strangely enough, throwing the consumer out of work and causing higher unemployment to affect lower demand is the core of demand-side economics. It is hard to see how the demand side benefits the poor at the expense of the rich. The supply-side economist argues that there should be less government intervention in demand. Instead, the government should stimulate the economy by encouraging greater output through supply stimulation.
Both sides have identified two extremes within a non-linear system, even though their arguments, based upon a linear assumption, assume that the other is totally wrong. If we look at just the last 10 years of economic activity, we can clearly see changes within the infrastructure that provide a period when each form of economic management would indeed be appropriate.
Looking at the period 1976–1980, it would be difficult to label this period as anything other than an inflationary spiral led by demand. Raising interest rates would be appropriate under such conditions when demand flourishes wildly beyond its normal capacity. Hoarding and speculation were in full bloom. Therefore, one should employ “demand-side” economics when demand is, in fact, out of control.
Nevertheless, in the post-1986 era and particularly since the ’87 crash, speculation is hardly the issue. We do not find excessive demand leading to the hoarding of commodities, as was the case leading into 1980. Yet, governments around the world are still employing demand-side economics to curb inflation, which is being caused by real shortages in labor and commodities. Clearly, in this case at least, supply-side economics makes much more sense. If interest rates continue to rise, the world economy will be threatened by a sharp and severe recession. However, the shortages on the supply side in energy, agricultural, and base metals will not be corrected by raising interest rates. Higher interest rates will not cause the weather to return to normal. Higher interest rates will certainly not encourage miners to open new mines. Higher interest rates will also not cause a reversal in trend within the energy sector where exploration has been cut by more than 50% in the last two years.
Supply-side economics is as valid as demand-side economics. Everything within the system has a time and place because the system itself is non-linear. The chart provided illustrates our Theory of Non-Linear Intervention. This theory is very simple and based upon actual observation.
The standard economic assumption under demand-side economics is that raising interest rates will lower demand and inflation. Continually raising interest rates does not prevent inflation. At some point in the system, confidence breaks down, and higher costs in interest rates only add to the costs of production and doing business. Eventually, this spurs inflation instead of reducing it. They attempted to go to negative interest rates, trying to stimulate inflation by punishing people if they failed to spend their money. This attempt failed because they overlooked the simple fact that people will hoard when worried about the future.
The evidence of this is all the hoards of ancient Roman and Greek coins that reveal in times of uncertainty, people simply buried their money for a rainy day. The very basic assumption that the system is linear is obviously incorrect. The business cycle exists throughout all times and portrays the system as non-linear. If any effect is taken to extremes, the exact opposite effect emerges. This is the result of non-linear intervention. Each economy possesses a different infrastructure. Consequently, the threshold where interest rates will cease being anti-inflationary and transform itself into the catalyst of inflation resides at different levels in each economic system. Differences in the value of labor, taxation, political systems, and market mechanisms must be taken into account.
In conclusion, government intervention, which seeks to manage the economy in an efficient manner, always fails because they are conflicted with self-interest. They are the biggest debtor within society. Attempts to only manage the economy by demand-side economics ignore the free market entirely. Intervention cannot possibly work when government remains in the dark about how the economy even functions. They fail to comprehend the direction and cause of inflation or deflation. The first step is recognizing that there is a business cycle, the second is to accept that a cycle exists, and third, we merely try to prepare for the downturns exactly as David advised the Pharaoh – seven years of plenty v seven years of drought.
“I named my computer model after Socrates because the oracle of Delphi had said that he was the smartest man in Greece. He tried to prove the oracle wrong and the process proved it to be correct. He was put on trial and sentenced to death because he knew too much. My computer has taught me a lot in geopolitics, we had a major bank in Lebanon in the 1980’s and they asked if I could create a model on the Lebanese pound. I put the data in the computer and it came out and said their country would fall apart in 8 days. I thought something was wrong with the data. When I told the client, they asked me what currency would be best, and I said the Swiss Franc. Eight days later the civil war begn. Obviously they saw the movement of money themselves and came to me for the timing. The same thing happened with a client in Saudi Arabia who was a big shipper. He called me asking me what gold would do tomorrow because Iran was going to begin attacking shipping in the gulf. So once again, there was advanced information about war. By 1998, I understood how the computer was forcasting such events. I warned in June at our London conference that Russia was about to collapse. The London financial Times had snuck into the back of the room and reported that forecast on the front of their newspaper on June 27th 1998. Russia collapsed about 6 weeks later.”
Posted originally on May 25, 2024 By Martin Armstrong
Like to thank everyone for attending the London ECM Conference. We apologize that we were only able to accommodate a small audience. The venues in London are much smaller than what we can do in Orlando, It was so nice to be back in London after so many years.
Posted originally on May 24, 2024 By Martin Armstrong
In an interview on May 11, 2014, I explained on USAWatchdog that confidence always outweighs reality. “It’s basically what you believe. There have been all sorts of studies on fundamentals that say if interest rates go up, stocks go down. It is simply not true. The stock market has never peaked with interest rates twice in history. If you think you are going to make 25% in the market, you’ll pay 10% interest; but if you really think the market is only going to go up 10%, you won’t pay 10%. So, it’s always the difference between what you believe and reality.”
The people have lost all confidence in government. There were rumors of a “soft landing” from the Fed, but the situation can no longer be controlled by the central bank. Washington maintains that everything is stable as banks continue to fail and inflation rages on. There can be no price stability when war is at play. Government spending has reached a new high, as have taxes which are not counted in any major data report. I explained in 2014 that great empires all come crashing down after piling on massive debt. People believe hyperinflation would cause such a scenario, but debt is the major player. Once the government accumulates enormous debt, it targets its citizens aggressively. That is what we are seeing today.
So where should you put your money? I said in 2014: “One of the number one questions I get all the time is where do I put my money? If the banks can just take whatever they want now, there will be bail-ins rather than bail-outs. People are afraid. What do you do with the cash? So, people are buying things like real estate and stocks, just trying to get money out of the banking system.” Smart money has been trying to escape the banks for years. There was no incentive until very recently to park money in the banks due to artificially low rates. The hunt for taxation is causing people to flee from the banks. The downturn in government trust has caused everyone to run from government debt for fear that it will not be repaid.
I also explained that the Fed would only bail out deposits and had been asking institutions to change their models. “Everybody knows I advise some of the big institutions around, and I can tell you that they have told me directly that the Fed went to them and told them they will not be bailed out for proprietary trading. It will be only on deposits. That’s it,” I stated. “The Fed has been going around telling them, ‘hey, you better change your models.’ They don’t think it will be a flight to quality as it was before. You buy the long-term (Treasuries), and that saves you. They don’t think that’s going to happen. It’s quite interesting. . . . It looks like the long-term (Treasury bonds) is going to end up starting to rise.”
Sound familiar with the current situation? People have moved from the public sector into the private sector. We are well into a private wave, and the public will not go back to the public sector for many years to come. By that time, the government will have transformed into a new model that is far different from what we have today. My warning from 10 years ago was derived from the computer models, who never relies on mere opinion and are unable to factor in bias.
When I say that the computer is honing in on a new target or date, often, we must simply look at what unfolds on that target to understand the full forecast. We are waiting for the CONFIRMATION. The computer will give us that signal and we just have to go with the flow. It may be worse than trying to give a 5-year-old cough medicine. Yes, it tastes horrible, but it is necessary for the cure. The majority will not be able to make that transition thanks to their preconceived ideas and preconditioning. Many pilots who flew prop planes could never fly a jet because they could not make that transition to faster travel requiring quicker reaction times. This is the type of transition we face. We just have to abandon all prejudice and go with the markets. May 7 marked a major shift in the geopolitical landscape that ensures major conflicts with both Russia and China are on the horizon. I trust the trends in motion to forecast the future. As they say, the trend is your friend.
Posted originally on May 20, 2024 By Martin Armstrong
It is crucial to understand correlations as EVERYTHING fluctuates! There is absolutely nothing that remains constant. You MUST understand that correlations are NOT one for one, and often show changes in advance of turns. It is a lot to keep track of but this is why I try to post a global view to help you see the world around you. It is a necessary way of thinking to survive the future of our own follies.
When I was trading going into the high in interest rates at the Fed in 1981, each time the Fed raised rates the markets reacted less and less. When the final rate hike came, the markets moved UP, not down, showing that the trend was over. Interest rates DO NOT peak and bottom with the markets. There are advances and lags.
It is very frustrating to always try to sort out misconceptions created by analysts and the talking heads on TV. Just do a simple correction by comparing two charts. The DOW bottomed in March 1980. Gold peaked on January 21, 1980. The Fed kept pushing rates higher into May 1981. The Dow rallied with the last year of rising interest rates.
I stated many years ago that real estate would RISE with the first uptick because people would ANTICIPATE rates rising so they better rush to lock it in now. The people with interest rates under 3% lucked out, but some simply understood the trend. They do not throw in the towel on the first uptick. They disregard the nonsense spouted out by the talking heads on TV that create false images of why markets are moving as they do.
I noted to pay attention to rates in Europe. Germany was able to sell short-term debt at NEGATIVE yields. Why? Because Europeans are moving money in preparation for the collapse in the debts of Southern Europe. Some think if the Euro cracks they will end up with Deutsche Marks or Swiss. This is the same driving force sending money to high end real estate and the Dow. It is the MOVEMENT of capital that causes these trends and each confirms the other. It cannot be one thing in isolation.
Corrections DO NOT work one-for-one. Here, we see the call money rates from the NYSE. It would be nice if it were as stupid as the talking heads make it sound. We have tested every possible relationship. We have employed more computing power and capital to figure out what makes the world tick than anyone ever. That is why the NY banks & government want us to shut up. Just look at this chart. The stock market DOES NOT even peak with the same empirical level of interest rates with each crisis. It would be nice to say if rates hit 8% the market will peak. Sorry – that will NEVER happen. It is the spread between expectations of profit and the empirical level of interest rates.
It is not that I manipulate the world economy. We just spent a great deal of money to deconstruct it. Guess what – the world is not flat. There is a whole new way of economics and looking at how the world actually functions. Eureka! Try observing instead of dictating how the world should operate to support some hair-brain theory. Those who want me to shut up because what we discovered does not fit with their theory or belief that the government can control the economy by regulation are no different than those who killed Bruno or imprisoned Galileo for life.
Knowledge advances by observation. Stagnation emerges when people try to suppress advances because they want to remain in control. The Goldbug press refuses to quote me just like the NY establishment press that supports the bankers. They both have self-interests to support and hate anyone who says they are wrong. There is no difference from the Pravada of the old Communist Party that never acknowledged opposition.
Posted originally on May 17, 2024 By Martin Armstrong
Various cultures and religions have been concerned about the end of time looming throughout history. Aethelred II (978-1016 AD) was so convinced the world was about to end in 1000 AD that he removed his portrait from the coinage and placed the Christian symbol of the lamb on it. The world did not end, and he restored his portrait the year after. Why is there this need to constantly scream the end is near, which seems to plague Western society?
Turn the economy down, and you will find major upheavals in religion. To whatever extent our model may align with religion or even astrology, rest assured that neither are inputs into Socrates to make forecasts. So, I have found these prophecies of various religions interesting.
In our Western culture, we think everything is linear. I always found it interesting how Revelations 20, clearly lays out a cycle.
[7] And when the thousand years are expired, Satan shall be loosed out of his prison,
[8] And shall go out to deceive the nations which are in the four quarters of the earth, Gog and Magog, to gather them together to battle: the number of whom is as the sand of the sea.
The Bible describes a cycle. Some have interpreted this cycle as 6,000 years up, 1,000 down, and then it repeats. These are interesting times no doubt. Are they Biblical in proportion? No one knows the answer to that. But many always preach doom and gloom right down to Y2K and the Mayan calendar ending. They cling to the latest topic and go. It was the year 1,000 AD when the Last Judgment was to take place, according to popular conjecture. It did not. But it did start the pilgrimage movement from Europe to the Holy Land, and that led to the creation of the Knights Templar to protect the pilgrims. It ushered in a rebirth of trade that created merchant banking and then sovereign debt. This also sparked the Crusades. So, even wrong interpretations can have profound impacts.
One indeed begins to wonder what will happen to the human race. Technology keeps on advancing with greater and greater power, either for good or for destruction, as the government desires to eliminate all rights, privileges, and immunities. But this is part of a constantly repeating cycle.
Government is the enemy of the people. Historically, it has always been. They seek only one thing—power over others. They will do anything to retain that power. They cannot sleep at night worrying that someone has something they want or is doing something they do not approve of. This is part of a long cyclical process where government is always the great evil empire, for it ultimately always seeks to dominate the people regardless of what form it has taken.
If we take this 1000 years to be literal, this is by no means the end of the world. Yes, it may be a Great Reset, but our computer shows they will NOT win, and we are headed into the rising tide of civil unrest around the globe, which is revolutions and the prospects of international war.
Then there is the passage from Peter about a day being like 1,000 years. All I can say is the computer is non-biased and non-religious, and it simply looks at all the patterns throughout history. People will act the same way no matter what century they live in because human nature has never changed since Cain murdered Abel out of jealousy. We have advanced technologically but not emotionally.
Peter 3:8–9 reads:
“But do not forget this one thing, dear friends: With the Lord a day is like a thousand years, and a thousand years are like a day. The Lord is not slow in keeping his promise, as some understand slowness. He is patient with you, not wanting anyone to perish, but everyone to come to repentance.”
Even when we look at the Old Testament, we find cycles abound. Following the Ten Plagues to hit Egypt, Moses led the Exodus of the Israelites out across the Red Sea. However, After 40 years of wandering in the desert, Moses died within sight of the Promised Land on Mount Nebo. Moses did not make it to the promised land, so they wondered for about half the duration of an ECM wave. The fact that the prophets understood a year as 360 days is well established and can be seen in the prophecies of Daniel and Revelation as seen in the use of “time, times and half a time” (i.e. 1+2+0.5=3.5), “1,260 days” and “42 months.”
There is an agreement among Christianity and Islam that the end days will be similar. In Jewish eschatology, they are concerned with events that will happen at the end of the day. This includes the ingathering of the exiled diaspora, the coming of a Jewish Messiah, the afterlife, and the revival of the dead Tzadikim. Interestingly, on the slopes of the Mount of Olives, which I visited in the early ’80s, east of Jerusalem, and within sight of both the Temple Mount and the al-Aqsa Mosque, there lie about 150,000 Jewish graves dating from ancient times through today. Many of the bodies are buried with their feet toward the city, because ancient prophets declared that the resurrection would begin there, and the faithful would rise and follow the Messiah into the Holy City.
So, there is agreement among the main religions that the end of days or time awaits us. I do not know if this is the second coming. All I can do is provide the non-biased, non-religious forecasts of what is unfolding for the signs in the data. I do not dismiss that we will end up in World War III, but I also see that we should expect rising civil unrest and revolutions that will overthrow these pretend elected officials.
The computer agrees there is a great confrontation being thrust upon us as this Great Reset. Our computer shows that this is NOT the end of the world, but indeed a Great Reset where nations will fall but this is more like the final battle against communism. I am not a religious scholar and I am only trying to look at this and rationalize it with our computer forecasts which I do trust.
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