Public v Private – Cycle Inversion & the Dollar
QUESTION:
Martin,
Contrary to the sensationalism of this article, does the inversion basically just mean that gold is going down and the U.S. Dollar is going up?
ANSWER: When gold is money, it obviously declines during a boom purchasing less as stocks and real estate rise. When the business cycle turns down, then WHATEVER is money rises in purchasing power. Cash becomes king during a recession/depression so gold bought more during any decline.
When gold is a commodity, as is the case now, then it moves opposite. It will then rise with a commodity boom but decline with the downturn. So the turning points simply invert, they still do not change. Thus, 1998 becomes a low instead of a high because money is making its high at that time.
This is WHY when the floating exchange rate began in 1971, gold rallied into 1980 as did everything else from real estate, commodities, oil, taxes, and cars. A 911 Porsche in 1971 was about $10,000 and by 1980 it was $50,000. Everything went up – it was not gold alone.
The simple story is PUBLIC v PRIVATE. Whatever is a public asset (money) declines in purchasing power against everything during an economic boom as investment shifts toward PRIVATEassets. The economic decline then unfold and PRIVATE assets decline as PUBLIC assets rise. This is the “flight to quality” where bonds rise and interest rates decline.
Gold is a unique commodity for it has switched sides depending upon its role at that moment in time. The cycle does not change. It cannot. The reason is simple. There is so much involved including nature that mankind cannot alter the cycle no matter how long he has tried to intervene and manipulate society. The Russians killed Kondratieff for saying that.
Only in the WEST do people resist cycles. Asia, it is part of their religion. Even the Bible acknowledges there is a cycle with saying there is a time for everything and in the Revelations the King James Version speaks in cycles:
[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.
So I am not sure what is “sensationalism” about a business cycle that incorporates nature and tracking its movement. It is not something I created. It has existed throughout time. It is how light moves. It is the building block of the universe. You cannot point to anything that lasts forever and does not move. That is why the concept of God always was and will be is so hard to imagine there is no beginning or end. Nothing in our world is ever linear or else you would live forever. We too are nothing but a cycle. We are born, we live, and we die. Next!
I am not the only person to see the two opposite sides. When I first published this in the late 1970s, within a few years a professor at the The Citadel, The Military College of South Carolina called me and asked if he could teach this model in Philosophy. He pointed out that I had qualified a concept of Hegel. I never thought about that. When I looked closely at Hegel, I saw what he had seen in this model,
Some have gazed into the history of man and seen the mechanism that propels progress over the centuries. However, to accomplish this oscillating motion, it requires understanding and identifying two opposing forces as in market movements; bulls v bears. George Wilhelm Friedrich Hegel (1770-1831) looked into the past and came away with that realization of dynamic forces. Generally, his philosophy has been reduced to a dictum that “the rational alone is real,” which means that all reality is capable of being expressed within a system of transcendental idealism. This is what is commonly referred to as Hegelianism that has emerged from his writings including “Phenomenology of Spirit” (1807), “Logic” (1816), “Encyclopedia” (1817), and his Philosophy of Historyin 1820.
Hegel developed what is known as his Dialectical Schemewhereby the progress of history and thinking of mankind emerge from thesis to antithesis and hence this merges into a higher and richer synthesis. To some extent, Marx relied upon Hegel to assume that the system could emerge into a hybrid he argued would be a new state of communism. Hegel indeed applied his Dialectical Scheme in detail to religion, politics, logic, aesthetics, history and ethics. Yet Hegel had taken the position that all previous philosophical speculation had failed to give any clear view of reality, since it lacked this insight that reality could only be understood as a totality that he referred to as “the truth is the whole.” Hegel thus took the position that any attempt to understand the apparently unconnected and individual phenomena of nature, history, and the development of human life and society through any sort of separate categories of thought is utterly mistaken. There is some truth to this for we live truly within an interactive Complex Dynamic Adaptive System. It is a Complex Dynamic Adaptive Systemthat creates the whole and that a subtle change in direction of one variable can ripple through and alter the collective whole through interaction and interdependency of the variable.
Therefore, we are capable of group behavior, but we are also capable of individual behavior. For example, it was the collective behavior of the nations after World War I that imposed such harsh retribution payments upon the German people that led them to turn to Hitler in 1933. It was not that Hitler would have been accepted by the German people in good times showing that as an individual Hitler was not capable of changing the whole. However, we characterize this as being at the right place at the right time, which in effect means that the individual fits into a slot created by other dynamic changes and forces beyond that individual’s control within the whole.
There are always two opposing forces that coexist at all times driving the entire cyclical nature of events. Hegel’s views may make sense at the macro level, but are still a simplification of reality. There is a deeper complexity that exists and not all systems will merge into a higher synthesis. In many respects, the system at the macro level will remain in a state of swinging back and forth between these two opposing forces and there will never be a synthesis that allows a new compromised state to emerge. The synthesis will extend the life of a civilization. For example, the monarch of Britain was not discarded entirely, just stripped of any real power. The British society as an empire survived and evolved just as Rome was transformed from a Republic into an Imperial Empire. Sometimes, there is no synthesis and what emerges is total collapse.
A common example of Hegel’s Dialectical Scheme is the subject of LIBERTY. A savage has complete LIBERTY insofar as he can do as he likes, provided he is also just a nomad. He comes to surrender part of the LIBERTY in return for its opposite, to live in a collective society under rules. The synthesis emerges insofar as the savage now has greater LIBERTY in a collective society. While this example may in fact confuse the evolution of society at one level, it does not deal with how that collective state then collapses or why. Eventually, the individual is asked to give up more and more of their LIBERTY for the state is never satisfied with its present power. At some point, that denial of LIBERTY is no longer acceptable and the alternative becomes the dissolution of the state (revolution).
Hegel, correctly saw the swing between opposites that was the driving force behind the cyclical nature of history. Yet there is no permanent state of synthesis at the macro level in each instance. Eventually Rome collapsed for it lost the respect of the people by removing their LIBERTY. Once there was no longer a benefit to living within a collective society, people historically migrated.
QUESTION:
Martin,
Contrary to the sensationalism of this article, does the inversion basically just mean that gold is going down and the U.S. Dollar is going up?
ANSWER: When gold is money, it obviously declines during a boom purchasing less as stocks and real estate rise. When the business cycle turns down, then WHATEVER is money rises in purchasing power. Cash becomes king during a recession/depression so gold bought more during any decline.
When gold is a commodity, as is the case now, then it moves opposite. It will then rise with a commodity boom but decline with the downturn. So the turning points simply invert, they still do not change. Thus, 1998 becomes a low instead of a high because money is making its high at that time.
This is WHY when the floating exchange rate began in 1971, gold rallied into 1980 as did everything else from real estate, commodities, oil, taxes, and cars. A 911 Porsche in 1971 was about $10,000 and by 1980 it was $50,000. Everything went up – it was not gold alone.
The simple story is PUBLIC v PRIVATE. Whatever is a public asset (money) declines in purchasing power against everything during an economic boom as investment shifts toward PRIVATEassets. The economic decline then unfold and PRIVATE assets decline as PUBLIC assets rise. This is the “flight to quality” where bonds rise and interest rates decline.
Gold is a unique commodity for it has switched sides depending upon its role at that moment in time. The cycle does not change. It cannot. The reason is simple. There is so much involved including nature that mankind cannot alter the cycle no matter how long he has tried to intervene and manipulate society. The Russians killed Kondratieff for saying that.
Only in the WEST do people resist cycles. Asia, it is part of their religion. Even the Bible acknowledges there is a cycle with saying there is a time for everything and in the Revelations the King James Version speaks in cycles:
[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.
[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.
So I am not sure what is “sensationalism” about a business cycle that incorporates nature and tracking its movement. It is not something I created. It has existed throughout time. It is how light moves. It is the building block of the universe. You cannot point to anything that lasts forever and does not move. That is why the concept of God always was and will be is so hard to imagine there is no beginning or end. Nothing in our world is ever linear or else you would live forever. We too are nothing but a cycle. We are born, we live, and we die. Next!
I am not the only person to see the two opposite sides. When I first published this in the late 1970s, within a few years a professor at the The Citadel, The Military College of South Carolina called me and asked if he could teach this model in Philosophy. He pointed out that I had qualified a concept of Hegel. I never thought about that. When I looked closely at Hegel, I saw what he had seen in this model,
Some have gazed into the history of man and seen the mechanism that propels progress over the centuries. However, to accomplish this oscillating motion, it requires understanding and identifying two opposing forces as in market movements; bulls v bears. George Wilhelm Friedrich Hegel (1770-1831) looked into the past and came away with that realization of dynamic forces. Generally, his philosophy has been reduced to a dictum that “the rational alone is real,” which means that all reality is capable of being expressed within a system of transcendental idealism. This is what is commonly referred to as Hegelianism that has emerged from his writings including “Phenomenology of Spirit” (1807), “Logic” (1816), “Encyclopedia” (1817), and his Philosophy of Historyin 1820.
Hegel developed what is known as his Dialectical Schemewhereby the progress of history and thinking of mankind emerge from thesis to antithesis and hence this merges into a higher and richer synthesis. To some extent, Marx relied upon Hegel to assume that the system could emerge into a hybrid he argued would be a new state of communism. Hegel indeed applied his Dialectical Scheme in detail to religion, politics, logic, aesthetics, history and ethics. Yet Hegel had taken the position that all previous philosophical speculation had failed to give any clear view of reality, since it lacked this insight that reality could only be understood as a totality that he referred to as “the truth is the whole.” Hegel thus took the position that any attempt to understand the apparently unconnected and individual phenomena of nature, history, and the development of human life and society through any sort of separate categories of thought is utterly mistaken. There is some truth to this for we live truly within an interactive Complex Dynamic Adaptive System. It is a Complex Dynamic Adaptive Systemthat creates the whole and that a subtle change in direction of one variable can ripple through and alter the collective whole through interaction and interdependency of the variable.
Therefore, we are capable of group behavior, but we are also capable of individual behavior. For example, it was the collective behavior of the nations after World War I that imposed such harsh retribution payments upon the German people that led them to turn to Hitler in 1933. It was not that Hitler would have been accepted by the German people in good times showing that as an individual Hitler was not capable of changing the whole. However, we characterize this as being at the right place at the right time, which in effect means that the individual fits into a slot created by other dynamic changes and forces beyond that individual’s control within the whole.
There are always two opposing forces that coexist at all times driving the entire cyclical nature of events. Hegel’s views may make sense at the macro level, but are still a simplification of reality. There is a deeper complexity that exists and not all systems will merge into a higher synthesis. In many respects, the system at the macro level will remain in a state of swinging back and forth between these two opposing forces and there will never be a synthesis that allows a new compromised state to emerge. The synthesis will extend the life of a civilization. For example, the monarch of Britain was not discarded entirely, just stripped of any real power. The British society as an empire survived and evolved just as Rome was transformed from a Republic into an Imperial Empire. Sometimes, there is no synthesis and what emerges is total collapse.
A common example of Hegel’s Dialectical Scheme is the subject of LIBERTY. A savage has complete LIBERTY insofar as he can do as he likes, provided he is also just a nomad. He comes to surrender part of the LIBERTY in return for its opposite, to live in a collective society under rules. The synthesis emerges insofar as the savage now has greater LIBERTY in a collective society. While this example may in fact confuse the evolution of society at one level, it does not deal with how that collective state then collapses or why. Eventually, the individual is asked to give up more and more of their LIBERTY for the state is never satisfied with its present power. At some point, that denial of LIBERTY is no longer acceptable and the alternative becomes the dissolution of the state (revolution).
Hegel, correctly saw the swing between opposites that was the driving force behind the cyclical nature of history. Yet there is no permanent state of synthesis at the macro level in each instance. Eventually Rome collapsed for it lost the respect of the people by removing their LIBERTY. Once there was no longer a benefit to living within a collective society, people historically migrated.
Domestic Panic v International Contagion
COMMENT: I’ve found a very good point in one of your writings “there are panics that are local such as 1792, 1837, 1869, 1893, 1907 just to name a few and then there are those that are contagions that are global such as 1857, 1873, 1929, 1987 and 2007. Sometimes the contagion began in Europe as in 1873 and other times in the United States as in 1987 and 2007″. … .Are there any other panics in other parts of the world that were contagious before Great Depression?
ANSWER: Yes. Even the South Sea Bubble and Mississippi Bubbles were contagions within Europe aside from the theme of investing offshore in emerging markets. Even the Tulip Bubble, the first contagion post-Dark Age, was a European-wide contagion as tulips even traded in London. There were ancient contagions and panics. Stocks traded in Rome, insurance predated even that, and commodity markets thrived in a boom bust cycle as far back as Babylon. Why do you think there were attempts at wage and price controls? To defeat the business cycle.
Interest Rates will Soar into 2015.75 and Beyond
Here is our 1996 forecast for long-term interest rates that we put out with the dollar low in 1995. We warned that interest rates would bottom on the Pi Cycle 31.4 Years from the 1981 high. That would be followed by a very sharp rally in rates into 2015.75. This was all part of the forecast for the Sovereign Debt Crisis. So to answer all the questions coming in about interest rates – beware of any bond fund. They will crash and burn.
The Fed bought-in 30 year bonds trying indirectly to support the housing market. They fulfilled the cycle perfectly and now we will see rates rise faster than ever before. Thus, everything is exactly on schedule. 2013 is the turning point in rates.
Can we learn collectively from the past and take one giant step forward for mankind?
QUESTION:
Marty;
I get it. You are Galileo in the financial world. You are a threat to everyone from government, Goldbugs, to analytical circles. That is why they are so afraid of you and desperately try to pretend you do not exist. The treatment you received from the Goldbugs was disgusting and no different from the investment bankers. Good on ya! Do you think we can advance as a society for once?
JMM
ANSWER: Thanks. It is just Adam Smith’s Invisible Hand. They all have their own self-interest and could care less about the future of the whole. I see we are standing on the edge of a cliff and unless we wake up, society will crash and burn and the cycle will unfold but we will simply restart all over again never advancing one step in our knowledge. Figuring out what makes the world tick is interesting. They cannot see we have been down this road many times. The definition of insanity is doing the same thing repeatedly, yet expecting a different result. I fear we are too stupid as a species to learn collectively from the past and take one giant step forward for mankind to quote another Armstrong.
ECM – Just Follow the Money
QUESTION:
Hi Marty,
Has the ECM failed to predict events in the past? If so, which ones and were you able to modify to address the flaw? If not, what event(s) would need to occur to disprove the validity of the ECM?
Best Regards,
Kyle
ANSWER: No. It is a composite of everything, not anything individually. The key is understanding that capital flows from one market to the next and among nations. Capital always concentrates not just among individuals, but nations and within sectors. 2007.15 was real estate, while 2015.75 will be bonds, 2000 was the tech bubble, 1998 was Russia, 1994 was SE Asia, 1989 was Japan, 1985 was the dollar, 1981 was interest rates, and on and on. It is like lightening – it never strikes twice in the same spot.
Each market and nation have their own cycles. It is when that lines up with the ECM that we can distinguish where capital will concentrate this time. Gold flips because when it is money officially then it declines with inflation and when it is a commodity it will rise with inflation. The 1934 was the low and the beginning of the new gold standard whereas 1998 was the bottom. The cycle still functioned, you just achieved a cycle inversion.
When I was called in by the central bank of China for the 1997 Asian Currency Crisis, I was warning that the capital flows were shifting back to rush into the birth of the Euro. SE Asia peaked in 1994 4.3 years after Japan, and then the final panic sell off as capital was trying to get in for the euro.
