Gold The Market Update
In gold we have a Daily Bearish Reversal at 1250 followed by 1206, and 1179. But the next big area after 1206 will be 1088. The 1206 number is also a Weekly Bearish Reversal. At this point, gold has to close ABOVE 12816 on Friday just to stabilize. A weekly closing BELOW 12613 will warn we may see lower prices into next week. Our Monthly Bearish Reversal lies at 1151.80. So we have to keep this area in mind. We still see December as a key turning point and January shaping up as a Directional Change.
As we can see even on the oscillators gold is still not oversold. So despite the cries of manipulation, gold is still poised for lower prices ahead and it is not oversold on an unbiased mathematical model.
War on Gold
The Battle Between the Gold and Silver Standards of the 19th Century
QUESTION:
Mr. Armstrong,
You recently said in your Bitcoin article quoted below: “This is why they have been waging war on gold”, can you please explain who they are and how one would wage war on gold?
ANSWER: The war is not about price, it is about an alternative that could feed the underground economy. As taxes rise, things like Bitcoin will be shut down because it will deprive the government of taxes. They are concerned and desperate for money. Harry Reed is already talking about another $1 trillion tax hike. Democrats are floating lowering corporate tax rates to 18% but eliminating all tax breaks and making all operations overseas taxed here as well. That will create an international war for taxes. A company will be denied deduction for what it pays in taxes to another country. This is a WAR not just on gold, but on everything and everyone. They think if they just collect everything they will solve the problem. They will not reform the system. They are digging in their heels to justify a system that can only collapse.
They do not understand that their borrowing competes for the same pool of resources that is shrinking. This reduces the willingness of banks to lend to small business when (1) they have government debt, and (2) they can trade with other people’s money. Why lend to you to hire employees when they can make guaranteed trades manipulating Libor or something else?
We have to stop government borrowing, end taxation federally, print what we need to pay for federal government, privatize departments so people are qualified to work, install term limit to end career politicians and the corruption it brings, and this is just for starters.
Negative Interest Rates – Coming Soon to a Bank Near You
The ECB (European Central Bank) has announced it is now considering moving interest rates to negative. So those who wanted to know did Larry Summers’ speech have any impact – the answer was yes. This has been floated around behind the curtain. I have been asked about this increasingly over the last 6 months all because they lowered rates too far and kept them there too long that they do not know how to return to normal. The ECB is now considering a cut in the deposit rate where the officials will decide to take interest rates negative for the first time, as reported by Bloomberg..
STAGFLATION = INFLATION + DEFLATION
QUESTION: Martin,
I think I fully understand your argument that Hyperinflation can hot occur in an established economy/society and that currents events are leading, almost inevitably to deflation but, in the same way as the interest rate cycle is turning up, for the majority of us, certainly in the UK, basic costs, e.g food/energy, are rising.
It therefore beggars the question: will we continue to see a rise in cost of living inflation and, if so where and when would the model expect it to peak?
Many thanks again for your amazing insight but be careful, the bstds must be out to get you (again!).
AB
ANSWER: The proper term for the overall condition is STAGFLATION, where we have rising costs of living, but declining economic growth. This is starkly different from the more familiar inflationary cycle that is DEMAND driven where people are trying to preserve capital buying assets which are rising and purchasing power is declining.
In STAGFLATION, the driving engine is NOT demand, but rising costs. We experienced this in the 70s when there was the OPEC price shock. The cost of everything rose that was connected to oil even plastics. But this was NOT due toDEMAND but costs while in fact DEMAND declined because of price.
What we face is governments are raising taxes and thus they are consuming a greater proportion of the economy. Raising the cost of government (taxes) REDUCES the disposable income and therefore we have rising costs, but declining growth because it is not a DEMAND led boom but COST driven inflation.
Unfortunately, you being outside the USA, you will also experience CURRENCYINFLATION where prices will rise because of the decline in the purchasing power of the pound against the dollar. This again is separate and distinct from the good old fashionDEMAND lead boom. However, it is also why Britain emerged from the Depression faster than the USA after 1931.
The DEFLATION is therefore caused by the exponential rise in the COST of government that produces NOTHING to expand the economy or create productive jobs, which in turn contribute to the national wealth. This is like hiring a maid at home to make life easier, but she consumes money and does not add to your household income. Therefore, she is a “servant” that costs money to have and this is precisely the same reason government employees are called “PUBLIC SERVANTS”.
So it is an admixture of inflation from rising cost of government and deflation because they are shrinking the economy. We are caught in the middle. This is why there will be no HYPERINFLATION as defined rationally with Germany as the guide, but inflation in the cost of government will rise sharply when rates begin to rise and that will escalate the debt causing their knee-jerk reaction to hunt down more people while raising taxes. Already the Democrats want another $1 trillion tax increase. These people are the harbingers of economic destruction.
Ironically, those who conspired against our firm did not get the model. I knew if I gave that up there was nothing left. When I go to Capital Hill these days, I am actually introduced as: “This is the guy with the model they are trying to suppress.” If someone actually stole our model, they better hide under a rock because they will kill them to get it. Strangely, they want me to live because they still want to know what the model says. It is like the radio during the Great Depression. People starved to save enough money to buy one. Why? They had to listen to how bad it really was. Radio sales went up despite the Depression.
Gold to be or Not to be
QUESTION:
Mr. Armstrong,
Much respect for your work. Thank you. Could gold be entering into an extended bear market that could take us past a low in the next couple of years. I cannot possibly grasp how gold can even be involved in a portfolio with the movement to electronic money.
My question is, could this even be a possibility?
Thank you,
J
ANSWER: Moving to an electronic currency seems to be deflationary for it may be closely related to currency controls. The government have been targeting the underground economy and that includes gold. Not from a price manipulation perspective, but keeping track of any sales that are unreported. Refiners have reported to us that they must report from whom and to whom all gold is being moved and this includes gold that was shipped in to be refined here and returned overseas. They want to know what everyone is doing, why, and when.
From a price perspective,so far there is no indication that gold is entering a long-term bear market. We should confine the decline to 3 years max and the sharp price drop we just saw is VERY GOOD because we want to see it thrust down to achieve that decline within the short time frame. This is always about price and time. So if we can see gold break the 1,000 level in 2014, we have a reasonable shot at this being finished. If we do not see that price level, then yes, we could see it drag on for 5 years total.
Hyperinflation Definition
QUESTION: It seems some people play with the definition of hyperinflation and try to claim that is just 25% or more. This just does not seem right. Can you elaborate?
ANSWER: Real hyperinflation is in the thousands of percent, We saw inflation hit 25% numerous times including going into 1980. The dollar did not die. This is just total nonsense. There is absolutely no evidence that “hyperinflation” is 25% because that can be hit and the economy flip back to deflation as was the case between 1980 and 1985.REAL Hyperinflation comes in revolutionary government because they have no credit and can only print as the communists in Germany, but when that unfolds, no government has survived even beyond 3 years.
The Weimar Republic was born in 1919 and its currency collapsed into hyperinflation between June 1921 and January 1924. Guess what? That was precisely a Pi Cycle of 31.4 months. That is the MAXIMUM such hyperinflation can exist. So please. I can claim hyperinflation starts now at 10% and argue see, I am right. Good luck. Stop the nonsense. There is NO return from hyperinflation when inflation can hit even 50% with the current government surviving. So what do you call the German Hyperinflation to distinguish that – Super-Hyperinflation? Come on, 25% is by no means Hyperinflation and if you have to lower your threshold to that level to pretend you are not wrong, that is a serious ego problem.
Hyperinflation can ONLY be defined as a level of inflation from which there is no return. This nonsense that ALL FIAT currencies die by hyperinflation is propaganda. China has ALWAYS had “fiat” currencies. In fact, merely because in the West they used some gold and silver in coins did not mean they were not fiat. A fiat currency can still be gold – it is merely government declaring of gold is now $10,000 as of tomorrow.ANYTHING that is declared against a free market can be said to be fiat.
The debased coinage routinely. So simply making money out of gold or silver does NOTprevent the very evils they attribute to fiat. The raw fact is it has NEVER been the money that is the problem. It is the government. We had the gold standard under Bretton Woods that collapsed in 1971. Why? Because they tried to fix the price of gold while printing more money all the time. Hello! It is not fiat that is the culprit – it is fiscal mismanagement. You cannot show any period in history where simply because money was gold there was no inflation and Utopia existed. If that were the case, then why do Empires, Nations, and City-States all collapse regardless of what was money? This is the same logic that carrots are lethal because everyone who has ever eat a carrot has died.
HYPERINFLATION is not 25% or 50%. It is a rate of inflation from which there is no return. EVERY major empire has collapse from DEFLATION, never HYPERINFLATIONbecause government hunt down their citizens and that causes money to hoard and the economy to collapse. This is why unemployment among the youth in Europe is over 60%. Ask them is this inflation or deflation?
Earthquakes – Predictable?
The Great 1906 San Francisco Earthquake 5:12 AM – April 18, 1906
QUESTION:
Another thing I thought of is I wonder if your models can be used to predict major earthquakes and other similar events? I understand there has been some good research done that has found a good correlation between them and solar sunspot and other activities. I follow a YouTube channel called SuspiciousObservers and he makes a good case for it.
ANSWER: Yes. Actually you can probably ask our clients at one of our conferences. We also input that data as well. The computer picked up a correlation that when there was a large earthquake in Mexico City, there would be movement in New York shortly thereafter. There was a Double Earthquake in Mexico back in the mid-80s and that was the lead story on our report for that month. One client open that report and as he was reading it in New York, the earthquake hit.
I was doing a world speaking tour in the late 1980s. I began in Toronto, and was there for a quake. I then went to Vancouver in time for the next quake. I then flew off to Japan and made it there for the next one. I then went down to Australia. I was saying how this earth movement seemed to be following me. I was told, no worries mate. We do not get them Downunder. That night a quake hit and all power was lost for more than a day. I then flew to New Zealand (known as the Shakey islands), so of course the quake followed me. I met with the geological observation team there and told them this thing was following me around the rim of fire. They said oh no. Quakes are not related like that. Within one year, then call me and said, you know, you may be right.
The 1906 San Francisco Earthquake disrupted the capital flows internally within the USA contributing to the 1907 Panic, that created the Federal Reserve and why there were 12 branches to balance the capital flows within the United States. So earthquakes can be very important economically. We found this trend also in ancient Rome where earthquakes disrupted trade, imports, and forced relief projects altering capital flows with the Roman Empire. It was Tiberius (14-37AD) who responded to earthquakes with aid no different than we have today.
We input disease (which is cyclical i.e. the fall flue shots), earthquakes, volcanoes, and weather. The database is truly massive. The only people who collect more data is probably the NSA. This part of the database and forecasting we may open up separately.
Capital Flows – The Key to Everything
QUESTION:
HI Marty
In your blog on Computer Intelligence you said “currency movement reflects the capital flows.” If the AI is attempting to predict the collapse of a currency, how does it pick this up from currency movements? Wouldnt the collapse in the currency occur first, before the computer can factor that movement in to make a prediction? Or is there another raw data set that is used as an input for currency movement, like bank deposit figures of all banks in a country?
Thanks
Rm
ANSWER: A currency will not collapse unless there are trends that may be subtle, which unfold in advance. Just as with war. Whoever is going to start a war, repositions their capital in advance. If China were to plan an attack on the USA, they would sell all their US bond holdings first. A currency will NOT collapse out of thin air. Capital loses confidence and starts to flee. This was the indicator for the 1931 Sovereign Debt Crisis. The capital fled Europe and that pushed the dollar to record highs, our politicians responded with protectionism failing to understand what was happening. This led Hoover to describe the capital flows as:
Death Always Creeps in From the Periphery of an Organism
QUESTION:
Hi Marty,
It seems that one can look at the periphery of an organism and it highlights its future. The sub-prime mortgage crisis that preceded the Global Financial Crisis being a case-in-point. And, dare I say it, Greece preceding what is to come in Europe.
This made me wonder if the Chernobyl-like decay of Detroit is, to the United States, what the sub-prime mortgage crisis was to the Global Financial Crisis. Or what Greece is to the rest of Europe.
Is the end-game for the United States staring everyone in the face in the form of Detroit, Michigan?
ANSWER: Very good. You are starting to notice the emerging behavior patterns within the system. This is why I stated the dollar was not the problem, look to Europe and Japan first with the dollar the last to fall. Death in any system starts at the periphery of an organism and eventually spreads to the core.
Likewise, a real estate boom starts in the core (like NYC) and as that property rises, people begin to spread-out and buy. Eventually the suburbs rise in value but watch the origin in the core. That will be the first to decline and when it does, this trend will spread to the suburbs.
Detroit defaulting on its pensions is already being looked at as the escape for unfunded liabilities around the country. It is the road-map to the future. So yes, Detroit is reflecting the consequences of corruption, greed in government, and fiscal mismanagement. This is the very same pattern that emerged with the default of Mainz.
One of the best examples of how the same pattern of economic debt drives empires, nations, and city states to disintegrate is the City of Mainz. This is where the Guttenberg Press was invented and this led to an economic boom for the city. Money was flowing in from surrounding cities to take advantage of this new technology. The politicians became greedy and began to raise taxes and then borrowed against what they thought would be future tax revenues.
The pattern of events is simply like a Shakespeare play. They plot never changes – only the actors. By 1411, the government of Mainz’s interest expenditures reached 48% of revenue because they had issued annuities that paid interest.
By 1437, government expenditures of Mainz reached 75% of revenue. We are in the same position today. They were issuing new debt simply to pay off the expiring debt, which is standard practice today. By 1448, Mainz was forced into bankruptcy when there were no longer buyers for its new debt and they could not pay the expiring debt. Eventually, they had weakened their economy by chasing out the productive forces and they were then invaded, sacked what could be taken, and the city was burned to the ground.
History repeats because human nature NEVER changes from one century to the next. Detroit is our future. The question is how far do we have to go before the system collapses.
Will Electronic Money Be Deflationary?
QUESTION:
Hi Martin,
I read your article “The Tree Has Been Cut” and I’m playing devils advocate here.
Catherine Austin Fitts, the Former Assistant Housing Secretary, estimates the re-cycling of Narco dollars into the US stock market is substantial.
If electronic money results in better law enforcement and reduces both crime and the possibilities for laundering the proceeds of crime, wouldn’t electronic money then be deflationary for the country implementing it, as honest money may stay, but dirty money would have to hide somewhere else?
Best regards,
PB
ANSWER: I doubt seriously the connect with drug money and the stock market. That is fiction. The amount of know-your-client requirements makes that total bullshit. A friend got a divorce in Switzerland. The account was joint and he had to wire his ex-wife half that money. He had to provide copies of the divorce papers to prove why he was wiring and what was the source of the funds.
Will electronic money become deflationary? In combination with all the other regulations hunting down money for taxes, the answer is probably yes. This would most likely (opinion here) be the similar result to full blown capital controls since that is what would result by default.