COMMENT: Marty, I used your model as you have taught us. I sold the euro at 116 with a stop loss at 11705. I sold gold at 1305 with a stop above last year’s high. I can afford to buy seats at the WEC for my wife and son. Will you scream loud when it is time to buy gold? That should mess all the goldbugs up. They really hate you because they are the ignorant fools.

REPLY: Numerous emails are coming in from those who sold the Euro at 116. It is what it is. This is a shame politicians will never admit a mistake. They just go pedal to the metal and assume more of the same will reverse the trend. A close in the Euro below 11140 should signal that the trend will continue to press lower and the May high was possibly the high for the year. But that is our initial support for now. As for gold, yes, we take out 1206 on a weekly closing basis and new lows become possible. A close on Friday below 1225 and we should press lower. We do see capital inflows to the USA right now and this is probably because of the upcoming BREXIT vote on June 23rd. It is hard to see how the metals can rally against a rising dollar.

We will scream loudly when it is time to buy at the low. That will be for those who subscribed to the metals report exclusively. Everything has its time and place. Unfortunately, the gold promoters have one agenda so that is all they can preach. That is the entire problem in the United States. We have too many agencies competing for authority regulating everything they do not understand. The CDO bombs sold by the banks were approved by SEVEN agencies. Big deal. Not a single one figured out this was a bad idea. They are paid not to do a job. The credit rating agencies showed in 2007 they too are the disposal of the highest bidder.

This is why we have countless funds each with some special expert market. The muni-bond guy will always tell you they are the best. The emerging market guy will tell you its a buy. Every single specialty will preach its own book. The average person needs to become a hedge fund manager to sort out the nonsense from reality since they all preach with such passion and sophistry. So of course, any group I warn that instrument will decline will hate my guts. That is their bread and butter.

I was a global hedge fund manager. That meant people came to me to make those decisions. The world was available for my shopping cart. That is what I am trying to provide here. The unbiased global view. This is about survival. Sorry, I am not selling gold, swamp land in Florida, or condos in Bora Bora. This is about surviving what is coming and hopefully we can spread the word so when it cracks, we have enough influence to push toward freedom. Otherwise, say goodbye to the world we grew up in and your children will never know what freedom use to be.

It was debated at length today whether the Nikkei leads JPY or the yen leads the stock market! Either way we saw cash equities lose 0.9% today whilst the Yen rallied 0.6% only to lose that after the cash close. In late US trading we are looking at 110 handle but the Nikkei futures have rallied 1.6% and are currently quoted 16,775. After a negative session in Shanghai and only a very late rally clearing the Hang Seng we have had to wait the whole of the western session to see a 1% rally. The mood in US has helped all indices, not least Asia’s!

Europe took time to get sentiment moving especially after the poor German ZEW index when a 6.4 release pail into insignificance having expected a 12! However, from that point forward all core indices behaved rather well and by the close registered gains across core Europe of between 2.2 and 2.5%. FTSE was the only outlier as a 1.3% gain was complemented by an additional 1% gain in the currency. Late European strength was bolstered by the impress US Home Sales number of 16.6, especially against a forecasted 2% gain! US stocks just took that as a massive green light and Europe followed suit.

US market was in a better mood from the open and so the Housing number just provided the imputes it needed. With all core indices closing between 1.5 and 2% higher it was not really a surprise the VIX traded below the 15 handle. Once we claimed this mark the market settled into a quiet Tuesday afternoon session. This confidence also lifted the US Dollar with the DXY Index closing around 0.5% higher at 95.65. Given the strength in equities, it was deemed there is no need to support the price of gold and consequently that saw a 1.75% decline in its price to below the psychological $1230 level.

All this excitement and we forget the Bond markets! The first day in a while that we see selling at the long end but that did result in a 1bp steepening of the 2/10 curve. We do have a market test given that Germany will attempt to sell 30yr Bund tomorrow – will be an interesting test of market appetite! 2’s after the auction closed at 0.905% while 10’s made 1.86%; closing the 2/10 curve at +95.5bp but we did see it trade +92.5bp intraday. German 10yr Bund closed 0.175% closing the US/Bund spread at +168.5bp. Italy closed 1.42%, Greece 7.02% (-1bp), Turkey 9.79% (-35bp), Portugal 3% (-5bp) and last UK Gilt 10yr at 1.47% (+2bp).

QUESTION: Dear Martin, First of all, thank you for your daily blogs. First thing I read every morning. I can’t wait to attend Novembers Orlando conference. My question is about the inverse relationship of Gold(precious metals) and the Dollar. Looking at historical charts it would suggest that we may continue to see a price decrease in Precious Metals as the value of the dollar rises, deflation. This will continue until the Government panic sets in around 2021-2023 as your ECM tells us. Then serious lift off of Gold may occur as a new monetary system sets in and people want to get rid of dollars because of the complete loss of confidence in government and the future of the US monetary system.

Would love your input and thoughts.

D

ANSWER: There is no question that we should see overall deflation moving into 2020, but this is a different kind of deflation. This is capital contracting and hoarding, so you will probably see asset prices rise, but GDP actually continue to contract. The classic “inflation” people talk about is rather narrow-minded. They tend to see waves of only demand inflation when people are rushing to buy things. This is associated with hyperinflation, but that happens when confidence collapses in a government. That can take place in the peripheral small economies like Zimbabwe or the collapse of a government post-war as in Germany and other Eastern European nations post-WWI. It does not unfold in the core economy arbitrarily while others survive. It always comes from the outside in.

Now, let us look at cost-push inflation such as we saw with the OPEC crisis. They just raised the price of oil and the dramatic rise in the cost of production created the recession, yet demand contracted. So prices can rise from a ratcheting up of cost which can be both private like OPEC or through government with taxes.

Here you have Larry Summers, the father of NEGATIVE INTEREST RATES, admitting he cannot forecast the business cycle. Thanks for the many offers to buy him a seat at the WEC, but he looks at the world through the eyes of power and wants to change what the free market does. He has no interest in understanding how the free markets function. So we are faced with people who think they can force the economy into doing whatever they would like to see happen. It will NEVER work. If they cannot forecast, then how is it possible to create a trend they do not understand?

Since they lack any real world experience, it NEVER dawned on these people that there are two sides to every coin. They are trying to manipulate the world economy, yet they do not understand how it functions. Mr. Negative Interest Rates has set in motion the collapse of socialism by keeping interest rates low and has wiped out pension funds. So now that they created the next crisis, the next solution they are proposing is to seize everyone’s retirement funds so they can bailout their own.

Many of our old clients will remember this chart we published back in 1991, showing the 18-year Monetary Crisis Cycle that picked the 1985 high in the dollar. The next target was 2003, the breakout against the dollar following 2002, which was the low in the DOT.COM bubble. The British pound took off from 1.40, reached about 1.80 in 2003, and kept going into a high in 2007 at 2.1151. The next target will be 2021. Keep in mind that these previous targets like 1949 and 1967 were breaks in the fixed exchange rate system. We are now on a floating exchange rate system so these tend to pinpoint the start of problems rather than the end.

As far as gold, 2016 will complete five years down from the intraday high in 2011. Unfortunately, there is a split with the highest closing being 2012. That means the five-year bear market correction may not end until next year. There can still be a dramatic swing if we drop to new lows and then wildly break out to new highs. This would leave the bulk of the people confused and they would try to sell the rally, which provides the fuel to rise further. That is exactly what is unfolding in the US share market. You have countless people calling for an 80-90% drop who argue that the market is too “rich” at this level, but they are not looking at the alternative. Bonds?

We will look at this question in detail at the conference. We have to correlate the entire world to see the truth. Then we can lay down the markers; clicking them off one by one allows us to see the trend, confirming its direction for the whole. There is no doubt about it that the door opens for monetary reform in 2018. We are still in the staging period so we have to look at the whole to comprehend the trend.

QUESTION: Marty, it looks like the goldbugs will be wrong once again and you will be right after all. I can’t wait for your technical conference. My basic technical analysis looks like we are going to break $1,000. Your target for a high in May seems spot on also in the euro. I cannot see how gold can rally if the dollar is the only game in town as you say. Any tips?

ANSWER: I do not have the time to read what they are saying this time. It is typically always the same — only up. They were probably stock brokers in a past life during the Great Depression. Technically, we are fooling around with 1247, which is important support. We have generated a Monthly Bearish for May at 1282, but we also have one on our What-If model at 1240. A closing below 1240 next Tuesday will warn that the May high may be the high for the year. We still have support at 1225 and 1206. A weekly closing below 1206 should start the sharp decline. Nothing has changed as far as support under $1,000. A strong dollar should be bearish for gold initially.

QUESTION: Did gold bottom on your first benchmark? When you say adjusted for inflation, gold should make a new high by 2023, do you mean we have to wait that long?

ANSWER: We cannot ignore the fact that gold bottomed in dollars on the precise day of the target on the benchmark. However, you cannot look at the world only from the dollar perspective. If we are going to break the bank of the world economy, that comes ONLY with a rise in the dollar — not a decline. Raising interest rates domestically will help. We already have foreign banks opening branches in the USA so they can park money in the excess reserves at the Fed and collect 0.25%. So even a break for gold in dollars under $1,000 does not mean new lows in other currencies. For a real bull market to form, we need gold to rise in all currencies — not just dollars.

Now look at gold for the high of 1980. You see a unified major high. While the gold promoters kept yelling it would rally and make new highs, it fell for 19 years into the final low for 1999. Look closely at these charts. You can see gold declining sharply in yen for example. It was holding in pounds, reflecting the weakness in the pound rather than the strength of gold.

Ok, let us now turn to the 1999 low. We do not see a unified low. There is a very curious development. Gold in euros bottomed ahead of everything else the week of January 5, 1998, which was the beginning of the euro. When we ran our global correlated models, what popped up was a very bearish expectation for the euro despite the media being paid to cheer it up. You even had the dollar haters cheering that the euro would kill the dollar and they would become millionaires overnight.

Now look at the euro chart. We have recreated the euro using the formula for entry and not the ECU which included the pound previously. The major low was in 2000, and the previous high was in 1995. The euro began in a free fall, crashing to test the 80 cent level in 2000. This contributed to the U.S. DOT.COM bubble for all the money was pouring into the USA in fear of Europe, despite the media talking the currency up.

The fact that gold bottomed on our model in the euro the first week of 1998 demonstrated that the euro would fall out of bed. This illustrates how we simply MUST look at everything in the world. Trying to forecast anything in isolation is foolhardy.

Now look at the above chart again and you will see why the Swiss attempted a peg and why it broke. You do not see gold bottom in Swiss francs until the week of October 23, 2000 — about a full year past the U.S. dollar low and almost two years after the gold low in the euro. On September 6, 2011, the Swiss franc effectively adopted a euro peg with the Franc and ended its floating independence. Our model clearly warned that the Swiss peg would collapse. They sought to freeze the Swiss exchange rate at 1.20 francs to the euro with no upper boundary in place. The Swiss National Bank committed to maintaining this exchange rate to ensure stability. However, they were forced to abandon the peg on January 15, 2015, costing every Swiss citizen a fortune in the process of 6250 francs per person because capital fled to the Swiss and the dollar trying to escape the euro.

There has been nothing to negate the fact that gold in dollars can still make a new low under US$1,000. Keep in mind, that we must approach this from an international perspective. We will be addressing gold in the various currencies in this year’s edition of the Gold Report.

You could say that Japan has had more than fair share of poor data lately but sadly it continued today after a larger than expected trade data and a further contraction in its (Manufacturing) Purchasing Managers Index. This resulted in an initial 2% decline in the Nikkei in the morning session but only to see a recovery in the afternoon to close down 0.5%; well off of the mornings low. As a result of the continued uncertainty in the stocks we saw strength returning to the JPY taking the price back to the low 109 area. Uncertainty was the result of one of the shallowest trading ranges for the Shanghai in a long time, while HSI managed to push ahead 0.5%. Although we are not seeing large intraday moves the slow moves tend to go under the radar. It is worth noting the decline in the A$ as it is challenges the 72 level.

Although the DAX opened in positive territory it was not that long before we were in negative territory again. It was not a heavy selling session but it was one where the longer we were open the lower the indices declined. It feels as though the uncertainty is the real driving point (one dealer remarked) and the market was just worn down more than anything else. The problem with this type of trading session is that it can easily turn into a rout that ends with a sudden panic. DAX IBEX and CAC all down around 0.7% whilst the FTSE declined 0.3% (this probably because GBP lost 0.4% also. There is enough around to support this nervousness from the Austrian election over the weekend, BREXIT concerns continuing, possible rate increases in the US (we will hear directly from Janet Yellen on Friday) and latest GDP numbers in both Europe and the US later in the week.

Unsurprisingly we saw a quiet session for US stocks after Europe bored itself into the decline and ahead of a reasonably busy week. We are seeing an increased move into US stocks and US Dollars as the weeks draw-on. The yield game, currently in play in the bond market, is now being promoted within equities also – High yield, stable dividend stocks if we see increased volatility.

The yield curve continues to flatten with 2/10 not trading at +93bp. European bonds had a better bid earlier in the day but that wore off as we approached the close also. 10yr Bunds closed 0.18% closing the spread at +165bp. Italy 10yr last seen at 1.48% (+1bp), Greece 7.03% (-28bp after Gov’t agreed to measures and so the money is released), Turkey 10.14% (+11bp), Portugal 3.05% (-2bp) and UK Gilt 10yr closed 1.45%.

QUESTION: Mr. Armstrong; The scaremongering going on here is claiming that if BREXIT becomes reality, we will be thrown out of Europe and have to pay massively for healthcare outside of Britain. Do you have any information on this?

Thank you

A former neighbor

DS

ANSWER: There is something most Europeans are clueless about. The EU is by no means a free deal for all. The EU will be in dire straights if BREXIT goes through. Britain will be in far better shape than Europe. The EU will most likely offer the UK a European Economic Area (EEA) deal, which would have no impact on Brits at all. What is that? An EEA option will have virtually no effect on expats living in the EU. There is no doubt that single market participation will not change for the EU would be shooting itself in the head.

As for the question of healthcare, I do not doubt that they are lying about that as well. Currently, anyone from Britain living in Europe on a pension receives free healthcare. It is true that this is not the case outside the EU. However, unknown to most, the UK currently pays a large sum to countries in the EEA to cover British healthcare. For example, the British Department of Health already reimburses other EEA countries as well as Switzerland for the cost of providing treatment to people for under EU law, irrespective of nationality. The likelihood of that ending is probably nil for it would mean any EU citizen would be denied healthcare in Britain.

I seriously doubt that leaving the EU would disturb trade or healthcare. The net effect of BREXIT would retain independence of London as a financial center, eliminate the necessity to open its borders, and exit the likelihood of the Bank of England being subordinated to the ECB, which will come, not to mention freedom for its own taxes and regulation. Despite the “scaremongering”, Britain would get the benefits of trading with the EU without surrendering its sovereignty to an unelected bureaucracy that the people would have no possible way to disagree with, outside of war.

QUESTION: Mr. Armstrong; On the one hand you show the debasement of the Roman currency, but then you say there was also massive hoarding and deflation. Can you explain how do you get deflation with debasement?

Thank you for the the mind food

PH

ANSWER: It may seem to be a paradox, but everything unfolds like a bell curve. This is why you will not get the same result by simply moving in a straight line. We are currently experiencing this under Quantitative Easing by central banks. We have increased the money supply, but we are moving toward negative interest rates, which promotes hoarding. People have not been investing. Instead, they have been sitting on the sidelines trying to figure out what to do.

Sir Thomas Gresham made the observation that debasing the currency results in bad money driving out good money. But what does that really mean? What he is saying is that people start by hoarding old money. It may be a paradox, but debasement does not cause hyperinflation. Rather, debasement causes deflation because the people hoard the vast money supply that was in circulation. Therefore, the government needs to debase to attempt to keep a sufficient degree of money in circulation. The more the government debases, the more people hoard. As people hoard, they contract from commerce and GDP, which results in a reduction in tax revenue that causes government to further debase to make up for revenue shortfalls.

When you introduce a collapse in confidence in government, people no longer “feel” secure and they hoard even the based currency. This is why we find so many hoards of debased Roman currency during the chaotic 3rd century.

It is a curious paradox. Right now people are hoarding, as are the banks and corporations. It is hard to hoard paper currency for you will not be able to distinguish between old and new. This means that the hoarding will migrate to tangible assets, shares, gold, silver, and antiquities.

The people who counted the votes are claiming that the Austrian election is in a dead heat. Norbert Hofer of the Freedom Party and Alexander Van der Bellen are each on 50%, according to the estimate, which includes postal votes not yet counted. The pools really put Hofer ahead, so there may be some voting counting issues — Stalin fashion. Nevertheless,  what this is demonstrating is that 50% of the people are fed up with the EU. Instead of addressing the crisis, those in Brussels refuse to ever change course.

QUESTION: Mr. Armstrong, with your 2015.75 turning point on the ECM, you said that was the peak in government and the following 4.3 years would turn down rather hard. You also said 2016 would be a strong rise in 3rd party activity and people are now talking even about Bernie running 3rd party. You said 2017 would be the year from political hell and it looks really crazy here in Europe and with Merkel gone, everything will change. Then you said the monetary system would change by 2020 but could come as early as 2018. You said interest rates would start to rise in 2016 as early as March and that would be the fuel behind the dollar and help create the Sovereign Debt Crisis. I understand this is not your opinion and I can now see how each is linked to create the trend. The Berlin conference was fantastic and really helped me understand how this all fits together. My question is simply this. Do you have any idea what the type of monetary system we are headed into? What survives? You said the IMF is trying to position itself for that role which you opposed. Any clue yet?

ANSWER: The Fed is between a rock and a hard place and is trying to be that little flower that sees the light. It has two choices: (1) deal with the pension crisis at home by raising rates to prevent defaults, or (2) keep rates low to save other governments in emerging markets who continue to borrow and are doomed anyhow. Then there is the question of whether the budget deficit in the USA will explode with rising rates.

The Fed has really lost control of the economy, but the mainstream still needs to figure this out. Our model goes nuts from 2018 into 2020. This is part of the peak in 2015.75. Of course, the general public does not see this yet. They should by next year and then the game will change.

Governments will not go quietly into the light. They will rage at every possible moment. They are moving toward electronic money since their solution is to force everyone to pay whatever tax they demand. On January 1, 2017, G20 will begin sharing info on everyone. Compliance in business will cost tens of billions of dollars alone. Even companies who do not have foreign clients will have to confirm they do not.

Naturally, governments will act in the most stupid manner for they will not reform. Even if they grab everything, it would not be enough to save them. So be prepared. They will get very punitive. Expect crazy laws to benefit them like constitutional amendments. They will find whatever excuse to confiscate assets; mere suspicion will become proof and it will be your burden to prove innocence.

The old guard is near death. People like John McCain and Barbara Boxer, who was shouted down in California by Bernie supporters, are out the door. We are looking at new people coming to power — the changing of the guard. In this respect, Trump is part of the new and Hillary is the old world of corrupt politics. We are turning the corner. Those in government remain clueless.

What survives is always tangible assets be it land, industry, shares, or something of value like gold, silver, antiques, etc. Whatever currency we use is only a medium of exchange between tangible assets. Currency is not “money,” it never holds its value, and by no means is it a store of wealth. It is just a medium of exchange like a language. So whatever we end up with, which I believe will be some basket of currencies, will become the new medium of exchange through which everything else is measured.