The Ultimate Mind Game – To Crash or just Correct
QUESTION: Hi Martin,
Thanks for your great work, it is a pleasure to read your articles and your explanations about gold, government debt and the stock market. Your last article has me confused, however. I have learned from your articles that a crash in the stock market can only occur when the retail investors are in. The masses are always wrong and when they buy the last 12 months, the crash is near. In your last article you mention the possibility of a cycle inversion. So my question is: how can we have a crash in 2014, when the retail investors are still out of this market?
Thanks, H
ANSWER: If we get a high in 2014 and a decline into 2015, it would be only a correction and not a CRASH in that sense. This would invert the cycle and then stock would be the flight to quality not bonds. This is only a possibility and not yet confirmed. It become possible ONLY because we have a sovereign debt crisis and capital will flee to private assets. There is no safe haven in government bonds. Even during the Great Depression, Andrew Mellon first said about the crash in stocks that this was why “Gentlemen prefer bonds.” He was then proved wrong in 1931 when the bonds collapsed.
We are dealing with a complete inversion in thinking process. This is the essence of the shift from Public to Private debt. After the Sovereign Debt Crisis on 1931, people then turned to AAA corporate debt rather than government. They even assumed the USA would be next to default and that is why the dollar then crashed in anticipation of a default that never took place.
This is the ultimate mind twisting game that we now face. This is why the report I am preparing is so important simply to comprehend this complex subject historically how capital actually moves. There is no room here for personal opinions. Just the raw facts – thanks you. Capital moves in ANTICIPATION of events, and they do not even have to happen. That is the ultimate mind game.
Already you have people claiming the market will crash just like 1929. They have no idea of what they speak. You cannot even compare the charts of a single market. This is way beyond simplistic analysis. This is stuff that will carve new pathways for thinking in your brain.
Dow 32,000 or 20,000?
QUESTION: Dear Mr Armstrong,
I hope you and your family are well.
Before I ask my question you are a hero of mine and a champion of the little guy and for that I commend you. It would have been easy to come out of jail and not help the general public and advise very wealthy people and basically self serve. You did not you are a man of great integrity, so thank you.
Before I ask my question you are a hero of mine and a champion of the little guy and for that I commend you. It would have been easy to come out of jail and not help the general public and advise very wealthy people and basically self serve. You did not you are a man of great integrity, so thank you.
My question is this, Your call of 32,000 DOW will be fulfilled I have no doubt whether we get to that exact number remains to be seen but DOW 30k will be breached or we will get damn close. But arguing over 2-3 thousand dow points is splitting hairs in my opinion.
The issue I have is Europe as you have said is in a state of disarray but for me the German DAX is the most important market in Europe and this market has out performed the DOW even the rest of Europe FTSE/CAC etc have lagged the US indexes. Is this jus a temporary problem and the DAX will loose its shine and the dow and other US sectors will power ahead whilst European market either stagnate or move up but just not at the same velocity as the US indexes??
The issue I have is Europe as you have said is in a state of disarray but for me the German DAX is the most important market in Europe and this market has out performed the DOW even the rest of Europe FTSE/CAC etc have lagged the US indexes. Is this jus a temporary problem and the DAX will loose its shine and the dow and other US sectors will power ahead whilst European market either stagnate or move up but just not at the same velocity as the US indexes??
I hope you find the time to answer this question.
Once again thanks for all your help not just from me but from everyone whom takes the time to read and listen to your work.
Once again thanks for all your help not just from me but from everyone whom takes the time to read and listen to your work.
Kind Regards
MS
MS
ANSWER: The question of how high will the Dow go depends entirely upon capital flows. The Nikkei soared from the 20,000 level at the low in 1987 to 40,000 by the end of the cycle 1989.95. Here are the projections we gave back then – 39,314 and 59,979. It is always a question of TIME and PRICE.
Currently, our projections for the Dow are 20,000 for 2015.75 with the extreme being 32,000. It seems that the 32,000 is more likely hit on the next cycle, for if that were to be reached on this cycle in 2015, OMG the aftermath may be catastrophic. Nonetheless, this is a Phase Transition that we cannot rule out just yet.
The target 2015.75 is 31.4 years from the start of the breakout in 1983 where the Dow finally broke through the 1,000 barrier. We are laying out the cyclical perspective for the years ahead in the upcoming special report.
The DAX has outperformed because it is also an accumulative earnings index a bit different from most others. However, the German market has experienced a capital flight within Europe as people have sought shelter from the Euro in Germany assuming if the Euro fails, they will end up with Deutsche Marks. Germany has not outperformed the US on substantive issues. It is simply a capital move and not based upon economic outlooks.
Gold – Hedge Against Making Money?
QUESTION: Mr. Armstrong,
I really appreciate your comment “– YOU ALWAYS ASSUME YOU ARE WRONG. Why? That forces you to constantly double-check everything four times.”
Thank you for causing me to question my assumptions regarding the markets and specifically PM’s. I can see know that I was holding gold for all the wrong reasons while ignoring the true reason and time to buy gold.
Were it not for you I would have held on indefinitely waiting for gold to go parabolic for reasons that are not realistic, and I would have missed the coming move in shares.
My question is, since Canadian real estate only dropped about 10% in 2008, not 40% like the US did, are you expecting a severe crash in real estate in peripheral countries like Canada heading into 2015.75? Or might prices just move sideways for a decade or so and not really crash per se?
Also do you have prediction on how much the Dow may drop after a dramatic loss in confidence in 2015.75?
Thanks for helping average guys like me make smarter decisions.
May this ex-gold bug never be “Bugged out” on any given idea ever again.
RS
ANSWER: Yes. To be a great trader, always assume you are wrong, NEVERalways right. That forces you to constantly double-check yourself and your reasoning. Whenever a market performs in a manner OPPOSITE of what you expect, you are wrong not the market and making up demons who are forcing the market to go against your expectation is merely a state of denial. Nobody can force a market to move against the trend. All the central banks in the world could not ban together to prevent recessions. Read the comments of various Fed Chairmen in the piece on the Business Cycle I wrote who have admitted total failure in manipulating the economy. Even John Maynard Keynes admitted before he died that his theory was wrong and stated:
“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
You cannot systemically manipulate anything against the trend be it a market or the entire economy. The forces of the free markets are comprehensive. The full version of the model I created tracks everything on a global correlation basis. Weather, earthquakes, war, and social unrest, are all influences behind theBusiness Cycle and combine to make the trends.
The USA was bankrupt in 1896 when JP Morgan lent it gold. After World War I and II, the USA had 76% of the total world gold reserves and that is what the dollar became the reserve currency. It was WAR and capital flows that made the dollar what it is. Europe became too socialistic after the wars and thus remained second-rate. They created the euro thinking it was the single currency that made the US the largest economy. No, it was a single language and economic freedom. Europe tried to nationalize everything and it was not until Maggie Thatcher that she began the real trend toward de-nationalization. A Starbucks Vanilla Latte in Switzerland costs 8 SF ($8.82) and in the USA $4.76. The average net worth of a European is less than an American because they spend a greater proportion of their income on taxes the governments waste.
Canadian real estate did not drop as was the case in the USA because it was not leveraged by subprime schemes. We are preparing a VERY IMPORTANTreport on the stock market and real estate. This is essential to really understand because we may see a complete Cycle Inversion that will market the real breakout as we head into the Sovereign Debt Crisis.
There is a process whereby the cycle actually INVERT. They still produce a turning point on time. What happens, the opposite unfolds. This is how markets make changes in long-term trends. I published this on the metals in an old hand-made chart from years ago, Understanding that Cycle Inversions take place is important. It also represents a reverse in the thinking process of society and they start to interpret things opposite of what they did previously.
I am working diligently to get this report out ASAP. The conferences to be held in the first quarter are also geared to this type of event. The computer is already highlighting next September from many different markets. This is the next turning point on the ECM. Will the metals bottom in 2014? Will the stock market peak in 2014 and invert to become a bull market into 2020? There are serious questions that need to be answered. We are not dealing with plain vanilla analysis here. This is hard-core global net capital flow movement that is becoming very aggravated to say the least. The time NEVER changes – the events do following the flow of capital.
Shadow Banking
The shadow banking system has expanded dramatically thanks to regulation. The term has been applied to the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks. Bernanke provided a definition in April 2012: “Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions–but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions.”
The typical shadow banking system includes securitization vehicles, asset-backed commercial paper (ABCP) conduits, money market mutual funds, markets for repurchase agreements (repos), investment banks, and mortgage companies. However, the shadow banking area has grown in importance to rival traditional depository banking and was a primary factor in the subprime mortgage crisis of 2007-2008 and global recession that followed.
As regulation has sought to address the banking system after the subprime nightmare, all they have done is moved even more off-balance sheet from the banks into subsidiaries. The amount of reserves have been increased as a requirement for repos. Consequently, the money is then just moved off the books of the bank and into a subsidiary that has expanded the shadow banking realm all because Glass Steagal has not been restored. Probably the safest bank in New York these days is Bank of New York, They are the largest custodian and so conservative they may be hard to do business with in some cases. Effectively, anyone buying US treasuries one way or another goes through the Bank of New York.
The $2.3 trillion in excess reserves at the Fed is indicative of how banks are not lending money, but simply looking for profits without risk. The banks can earn 25 pips just parking at the Fed and they do not need to lend to cover their expenses. The Fed created the excess reserves in 2008 and that has now become an institutional function where the banks can hoard cash all they want.
There is a huge amount of cash floating around that is not invested in the share market nor is it being used to expand the economy. It is short-term money that is outside the realm of long-term investment.
Here is the first opening page of a very important report of the US share Market and Real Estate. It is vital that you understand what is really taking place to survive the next few years.
