Euro – Cycle Inversion or Phase Transition
QUESTION: Martin
In your latest post you go into very good detail of how the Euro continues to be strong(although it has been noted the model expected it to fall) and that when the Euro does fall it will take the European markets with it. Are we to assume that if the dollar does rally it will take the DOW with it as well? Any update on the cycle inversion?
Regards,
JCL
ANSWER: This whole extension of the markets is early. But it is not yet complete and it is still not certain if we are getting the Cycle Inversion or the Phase Transition.We may not know this until February. Ideally, the Euro would normally have declined into Jan/Feb and so should have the share markets. We warned last summer that the Euro could rally into Jan/Feb, which was based on the preliminary capital flow trends. That has been the case, but the euro has not blasted up to new highs – it has just traded sideways while remaining strong thanks to deflation yet stuck between the Reversals at 14700 and 12950. It has neither elected Bullish or Bearish Reversals. The model has provided no buy or sell signals as of yet.
The share markets have rallied. But look closely and you will see the Dow just backed off with January. So it is not yet definitive. February is a turning point. We should get the opposite trend thereafter into the Spring. The timing never changes which is why I specify these are TURNING POINTS not specific highs or lows. It is a chain reaction process of extraordinary dynamic complexity. Absolutely every market movement around the world combines into creating theOVERALL trend. Nothing moves in total isolation.
If we get the Cycle Inversion early, that would push the rally beyond 2015 and we may then see the market rising when the ECM declines for capital would then realize government is the problem and it then has no choice but to move into private assets. The question is do we get this now or on the next wave where Panic Cycles are already projected for 2024 the top of the next wave.
To some extent, this is what happens in a hyperinflation of a revolutionary government where people neither hoard cash nor keep money in banks. The hyperinflation is spending money as quickly as you get it so the VELOCITY of money rises tremendously. Deflation is the hoarding of money and assets. This has nothing to do if money is fiat or not since in truth all money is fiat when when it is gold coins. The gold standard was fiat where the government dictated gold was $35 and never changed it. In that case, they undervalued gold. Fiat historically has worked both ways and the Swiss pegging the franc to the euro is again a dimension of fiat dictating the value of money.
We are not in a hyperinflationary situation but deflationary where established governments are trying to hold on to power and hunt down everything and everyone in the private sector. This is the opposite of a revolutionary government that has defaulted on all national debts of the prior government. They have nothing to pay off and no assets so they print to cover expenses. We are in the nasty government phase where as Herbert Hoover said when a government becomes enraged, it will burn down the bard to get the rat.
Capital is already shifting from bonds into equities in the USA at the pension fund level (not retail) because they have no choice. We are UNLIKELY to see the Dow decline when Europe fails, but this will be more akin to the Nikkei rising into a bubble for 1989 after the 1987 US Crash.
We have a convergence of several trends. First there is the chaos in Europe from the insanity of government self-destructing the economy, but that domino has not yet fallen over. When it does, it will send cash pouring into the dollar as it did in 1931. Secondly, we have the crisis in pensions that is driving money away from bonds and into equity just to survive, The third major aspect yet to materialize will be the classic bubble with the retail market buying the highs on hype. Thirdly, there is the change in energy that has indeed impacted the global economy as 15 refineries in Europe have been forced to close as the USA no longer imports from Europe.
Dollar Bears May Be Slaughtered
The dollar bears still outnumber the bulls by nearly 10 to 1. The primary argument has been the QE and this idea that the quantity of money somehow determines its value. But like everything else, it is just not so easy said nor done. This is like looking at one side of a coin – the reverse. How do you know the date unless you look at the other side?
The USA cannot be judged by QE nor by the policies of government. I hate to tell you, but not only is there no major conspiracy group in charge of the economy, not even government is in control. It remains a free market and capital rushes around the globe dependent upon many factors in each country balancing off against these same factors in every other currency.
The value of the dollar is NOT determined merely by the quantity of money. It is not simple a childish view that VALUE = SUPPLY. It is clearly VALUE = (SUPPLY – DEMAND). The demand for dollars is impacted by not simply domestic issues. This view is so primitive you might as well be seeing a witch-doctor for a headache. It is also the myopic view that stifled progress assuming the world was flat. If you cannot open your eyes to comprehend the global economy and see that the trends around the globe conspire to impact the best plans of men and mice domestically, then your future appears dark and dim.
America has led the entire internet. The innovations have come from the USA – yes even spying on the entire world. The European tax system is great for bureaucrats – terrible for job creation. the VAT system burdens Europe with unbelievable record keeping. Each level must pay a value added tax and gets to deduct the previous costs until it get to the final destination. The amount of paper-work is crazy and the accounting burden is far worse than a simply point-of-sale sales tax. The the governments have owned so much of industry from utilities, TV, to banking, that even the film industry and music industry remain at the top of the game worldwide. Hope in a cab in Rome and you will listen to American music yet the cab driver will not speak English.
It has been American technology that has also changed the game in energy. The dollar bears just refuse to believe anything has changed. The American oil boom is real and nothing is more self-evident that the sheer fact that 15 major European refineries have been driven out of business in the past 5 years because the US no longer is importing oil from Europe. The US is now starting to export to Europe. Nigeria, which used to send the equivalent of a dozen supertankers of crude per month to the U.S., now ships fewer than three, Currently, domestic drillers are starting to even threaten change the whole dynamics of energy on the West Coast eliminating the producers in the Middle East and South America. The cheap oil coming out of the Rocky Mountains, has seen output surge by 31% since 2011,
Nothing of this is due to innovations in government, yet each party will always take credit for something. The whole dynamics in capital flows has been changing. The political risks now rise in 2014 and the capital flows from global instability are also shifting into the USA. This bullish trend for the dollar that is on the horizon may be sparked by the political trends, but it is far more fundamental. It is reflected in all commodities from gold to wheat.
The bear market in commodities is a byproduct of the shifting trends in capital flows. We will see lower prices in commodities in 2014 and this is also a reflection of the dollar.
Global Market Watch January 8th, 2014
The Global Market Watch has been posted for the close of January 8th, 2014.
The Growth of the Internet – The Dawn of a Complete New Era
Number of Websites
The continued growth in the internet has had a tremendous impact upon the global economy and political events as well. The total number of website domains is up to the 644 million level while active sites are approaching 200 million. This news is moving to the internet world and mainstream media will continue to decline. The younger generations are not only abandoning money using things like Google Wallet, but they rarely read newspapers any more.
The entire future has been altered and as this older generation dies out, newspapers and even the idea of paper money will fade into the distant past becoming relics for a museum much like a 45 RPM record, 8 Track Tapes, or even a small tape recording device.
The past is gone and a new age is on the horizon. This is also having a tremendous impact upon the job market and those that are computer illiterate will become competent for service jobs and even that will be limited.
Meanwhile, Government Surveillance has expanded rapidly. This is not merely a question of liberty, it is an economic question of money. As government embrace electronic money they seek to make tax avoidance impossible. Even working under the table will become impossible if there is only electronic money. How will they sell drug? How will illegal gambling take place? There are many questions about how electronic money will change society, but one thing for sure – privacy will become a thing of the past. The SciFi films that picture police being robots is not really that far off in the distant future.