QUESTION: Mr. Armstrong, it seems that there is a cycle to everything. I am starting to notice there appears to be cycles in the use of words especially in a legal context. Your piece on “discretion” is interesting how it evolves to suit the times. Money Laundering began as a drug crime and now it is applied everywhere right down to having cash in your safe deposit box. Sex was taboo with Kennedy so the press never reported his affairs yet is rather fair game today. Trump has been divorced which would never have been acceptable 50 years ago. Language and culture change with time. Is there a cycle length in this area of human activity?

ANSWER: The major cycle appears to be the 309.6-year wave. There is a very curious timing element, but I am not sure if it is valid since we have only one iteration which makes this highly speculative. If we take the birth of written language from about 1350 BC, the 3096 years (10 times the major cycle) interestingly brings us to the birth of the Age of Enlightenment. This is speculative, but at least consistent the way other elements function in a fractal manner.

Indeed, culture and language clearly change, but this also appears to be linked to weather. If you look at the clothes they wore in the 170os, they would be way too hot today, not to mention the style. If we look at a painting by Peter Paul Rubens (1577-1640) the women are robust and not thin like supermodels today. Back then, a skinny woman meant she was poor and could not afford to eat. Fat was a show of wealth.

Even language changes over time. Read Shakespeare and you will immediately see a huge difference. “Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” (Hamlet Act I, Scene III).

Indeed, as with most things etymological, it’s somewhat of a mystery how a term changes from describing a body part or physical act into a disparaged four-letter word that is common today. In fact, some modern swear words weren’t considered so rude centuries ago. Society is constantly changing ideas about what’s taboo and who we trust. We are in one of these periods where the trust and faith in politicians is declining rapidly.

The slang in Britain v the United States is a classic today. A “fag” in England is a slang word for a cigarette. In the USA, it is a derogatory word for a homosexual. Then combine that with the English term to borrow or take “pinch.” In the 1980s, sitting in a pub in London, the guy next might ask, “Can I pinch a fag?” Americans would always look at them, like why the heck are you asking me?

As British lexicographer Jonathon Green noted, in medieval England, all the popular swear words were a form of blasphemy. This changed by 1700 to reference sex and defecation became profanity, perhaps because of the rise of the religious right being the Puritans and Oliver Cromwell. They outlawed sports because it led to cursing and plays for they were filled with liars. They also outlawed Christmas, for you should be praying and not handing out gifts, and it was a felony to kiss your wife in public.

Perhaps we got over that as the British chased them out and they migrated to America to become our Pilgrims. This explains why we had Senate hearings over Janet Jackson’s breast popping out at the Superbowl. Still, these days, the most offensive words are now racist, sexist, and homophobic terms. While curses involving body parts and functions are common today, their shock value has lessened. The notorious “f-word” dates back to the 1500s, and it’s been impolite ever since. However, its use is no longer derogatory since it can be used, as in “I had a f-ing good time!” or “The IRS really f-ed me.” or “He’s a f-ing piece of shit.” It has morphed into both a positive and negative context, which is really strange, and can be used as both a noun and verb. Then the word “shit” simply began as a term for diarrhea. More vulgar usages developed over time, with some of the most colorful invented during the 20th century. Today, it is less personal. You are in “deep shit” meaning trouble or politicians are bullshit artists.

How does the evolution (or devolution, some might argue) of such words happen? Very slowly. Invasions and immigration mixed English and other languages, and this helped word meanings change. Go to Europe and statues in fountains commonly have bare-breasted women, such as the women and men Michelangelo painted on the ceiling in the Sistine Chapel. Everything changes with time, including culture and language. What is offensive today was not offensive 300 years ago or vice versa. It does seem to follow the 309.6-year cycle.

The latest poll now places Trump ahead of Hillary 45 to 42. The storm continues to brew in the Democratic Party and our models show there should be a Republican victory. The Democrats appear to be going with Hillary who has over a 50% rating as being dishonest. On top of that, she is simply seen as the establishment for Wall Street. Then, she thinks she is doing a great job saying she will appoint Bill to run the economy. Isn’t that an admission that she cannot? Trump said she just wants to keep an eye on him.

I wrote a piece for the Wall Street Journal on April 19, 1995 about Bill Clinton’s gimmick to reduce the deficit. What he did was replace long-term debt with short-term to reduce the interest expenditures. That trick will not work this time around. All the polls show that on the question of the economy, the people trust Trump more than Hillary and Bill. It’s just very curious that someone running for President admits that they cannot manage the economy so they will appoint their spouse. For a feminist, that really turns the apple cart upside down.

There is talk that Bernie might run 3rd party. That seems difficult for he would not have the time to get on the ballot in all the states. With over 30% of his supporters saying that they would vote for Trump rather than Hillary, we can can see the fall become interesting. That does not mean that the 70% of Bernie supporters would vote for Hillary. She is still everything they are not and the under 50 crowd are less likely to vote party line. There is a stronger likelihood they would not bother to vote at all. Trump’s supporters are charged and passionate. Hillary’s are not. She has brought in the old feminist supporters, but she is not bringing in the new generation.

It is still far too early to tell. Nonetheless, two of our 4 models project maximum percentages of the popular vote over 60% for Trump. That would be amazing since FDR, Johnson, and Nixon are the only presidents to exceed 60% since 1900. Still, the Republicans could lose the Senate. Even John McCain is claiming he may lose because Trump is at the head of the ticket. No, he is “establishment” and has not figured out he is the problem. Anyone who has ever encountered him in person will tell you he is a nasty overbearing guy that belittles a waitress. Anyone who does that lacks any style or class and is not qualified for public office anyway.

The market seems happy that the JPY trades comfortable north of 110 as we saw a small 0.5% gain in the Nikkei today. Hang Seng performed better closing up over 1%. with Shanghai also closing near its highs. A quiet session to close the week but at least on a positive note.

A quiet but very positive play in Europe also today. The stand-out performance were from FTSE and CAC both closing up 1.7% while DAX and IBEX returned 1.15% a piece. Unfortunately, GBP lost around 1% against the USD today which negates some of the FTSE gains.

A quiet day in the US markets also but after the losses we saw earlier in the week a small rebound was very welcome. We closed way off the days best and in a quiet session but it has been a week many are happy to see the back of. The DOW and S+P closed up around 0.3% whilst the NASDAQ closed up over 1% higher. The VIX came off its highs closing this evening at 15.2.

A quiet day also in Treasuries after the early sell-off we closed a smidgen higher (price, lower yield), with the curve small flattening. 2’s closed the session at 0.88% while 10’s closed 1.84% (-2bp); closing the 2/10 curve at +96bp. German 10yr Bund closed 0.165% (-1bp) ending the US/German 10yr spread at +167.5bp. Italy 10yr closed 1.47% (-2bp), Greece 7.31% (-1bp), Turkey 10.03% (+1bp), Portugal 3.08% (+2bp) and Gilts closed 1.45% (+1p).

Makes you think when you are writing a market comment when the yield for a 10yr government bond is 1.45% yet the currency lost 1% in todays session!

Gold has been backing off with the prospect of rising interest rates, but a weekly closing below 1225 will signal that the high is possibly in place. However, a weekly closing below 1205 will signal that a serious decline is likely. Technically, we can see critical points at 12434.47 and 1202.13, and a closing below 1202 will signal serious trouble for gold. Gold needs to close above 1265 today to keep it alive near-term. Closing below that price level is neutral and a close below 1230 is bearish just from a tech perspective. A close beneath 1225 will warn correction ahead.

To answer all the questions coming in how the gold promoters are burning people at the stake, they cheer every rally. They never say sell. It is always the same thing – up, up, and away no matter what else is happening in the world. They pitch each time this rally is real but lack any sense of where gold fits within the global scheme of market movement. Everything has its time and place. Gold will breakout, but it requires the collapse in public confidence. We are just not there yet. Trump and Bernie illustrate that this is coming.

Nothing has taken place to negate the prospect of new lows. Markets typically have to move to extremes on both sides to trap people. That is the character of markets – ALL MARKETS. It is human nature we are talking about. My dispute with gold promoters is that they use the same nonsense stock brokers did during the Great Depression – just buy and hold, it will eventually make new highs. In the case of the Dow, it took 25 years for 1954 to exceed the 1929 high. In real terms, it was 1966 adjusted for inflation that produced new highs.

Gold has not broken-out in real terms and that may not arrive until 2023. For example, gold broke through the 1980 high in 2008 in nominal terms in dollars and broke out again in Swiss francs in 2006. So monitoring any instrument in a basket of currencies and adjusted for real inflation is critical.

Back in the 1980s we ran full pages ads in Barrons’ warning gold would collapse. Back then, we saw a dollar rally in motion and I even appeared on FNN (now CNBC) to deliver a forecast that the British pound would fall to par. They thought I was nuts. How could the pound fall from $240 to $1 in just 5 years?
Then in 1985 at the start of this current private wave, we took the back page of the Economist Magazine for three weeks in July to announce that the Economic Confidence Model was turning and the age of deflation would end.

Everything has its time and place. If you do not monitor the world, you are not going to see when that time is coming due.

No market should ever become some dogma. This is about understanding how the world works; this is not propaganda for how you want it to work. Sorry – that is Marxism.

Opinion has no place in forecasting. It just doesn’t.

The Dow does not need to break last year’s low, as that was accomplished in the NASDAQ and S&P 500. Nothing has changed there. The entire interest rate issue has far too many people brainwashed. No doubt, they would initially sell. However, the market will rise with higher interest rates as it has always done. Therefore, as shorts build, we can easily create a bear trap and that will be the fuel to rally again. This is the churning we are in until it appears at least after September.

This time, we have a far more serious problem with where to put money – big money. Stocks are the modern-day version of what gold used to be decades ago when you could jump on a plane with a suitcase full of gold and sell it wherever you landed. Today, metal detectors prevent that from taking place. Stocks are being used to move money, but they must be the high-end shares that are traded globally (see article posted on Egypt).

There is ABSOLUTELY NO INDICATION yet that we are in a bearish trend poised to break last year’s low in the Dow. Another retest of support – YES.  This is the churning pattern. Breaking last year’s low would ONLY be indicated with a monthly closing beneath 16000 prior to August. Then we are merely extending this entire mess and not altering the long-term outcome.

That said, we have a more important number for month-end at 17579 followed by 17210. A May closing below 17210 would signal a possible test of the 16000 level in the months ahead.

Nevertheless, the first Minor Weekly Bearish Reversal in the Dow lies at 17434, which we flirted with on Thursday. We need a closing below this today to suggest a correction is unfolding. However, make no mistake about it, the next critical area is 17120, which happens to be a Daily and Weekly Bearish Reversal. That is the level to watch for a serious short-term break.

Keep in mind that people continue to think this market is “rich” in price and they are concerned about earnings. Those ideas are so out of touch with reality. The PE Ratio reached 50:1 in 2000 during the DOT.COM bubble, but it exceeded 120:1 during the 2007-2009 meltdown because blue chips are the place to secure money. The market is by no means “rich” from a historical perspective. We are not in some standard investment scenario. A 3% dividend is huge with negative interest rates in cash. Bonds are a disaster and have nowhere to go but down. So how is the market “rich” when there is no other alternative? This is why money has flowed into real estates, ancient coins, metals, and equities. We must look at the alternatives here and the idea of selling stocks must be followed with deciding where to put your cash. Banks or government bonds? Come on. Where’s the rational thinking here?

There have been a some unusual capital flow developments involving Egypt that illustrate a shortage of dollars caused by the decline in oil prices. However, this may also, in part, signal someone is trying to get money out of Egypt.

This decline in oil has resulted in a decline in subsidies for Egypt from other Arab nations. What has been taking place is interesting. Shares of Commercial International Bank Egypt on the Cairo market have been bought using Egyptian pounds. These shares were dumped in London and sold for dollars, creating a loss of 20% to 30%. There is a shortage of dollars building, and there are developing net capital movement through proxy instruments.

These trades have been creating regulatory problems. Typically, regulatory limits dictate how much of the company’s shares can be traded offshore in the form of global depository receipts. This flow of shares impacts regulations all because of  a shortage of dollars.

With the latest missing plane incident, one must look also deeper. Is someone trying to just get money out of the Middle East? They are selling shares for dollars, which do not always find their way back to Egypt.

Interesting that both the Nikkei and Shanghai closed almost unchanged following a similar trading pattern today but the Hang Seng really could not even attempt break-even, closing down 0.6% on the day. The JPY closed above the bullish reversal but we have a large gap to wait for the weekly. In late US trading the HSI remains unchanged from the cash close whilst both the Nikkei and China 300 have lost an additional 0.3%.

Europe reacted to last evenings FED rate concerns and from the open all core markets were heavy. Having recovered from Q1 lows dealers are concerned the lows may have to be revisited. Nervous trading throughout the day ended with the DAX and FTSE around 1.7% lower whilst IBEX and CAC both closed close to 1% lower. The UK Retail Sales were not enough to turn sentiment, despite a healthy number (1.3% m/m and 4.3% y/y against an estimated 0.5% and 2.5%); we did, however, see GBP continue its march; closing this evening around the 1.46 level.

With BREXIT now becoming a reason quoted by the FED for considering rate movement, it is no surprise FED speakers are highlighting June as a “Live” meeting! All core Indices had a negative session when, at one point, the DOW was off over 200 points. By the close, however, we did see a strong recovery with half those losses, closing around 0.5% lower across the board. Given today’s sell-off we saw renewed interest in the VIX and this evening that was last seen trading  16.7.

We saw a little buying return to the US Treasury Market with yields down around 2bp across the curve. 2’s closed this evening at 0.88% with 10’s at 1.85%. 2/10 curve closing +97bp. Germany lost a little ground on its spread today as yields rose by 2bp in 10’s today. The spread US/Bund closed this evening at +168bp. Italy 10yr closed u/c at 1.49%, Greece 7.32% (+5bp), Turkey u/c at 10.02%, Portugal 3.06% and UK Gilt 10yr at 1.44%.

Only marginal data between Europe and US tomorrow so not too much to get excited about. We still have news around the BREXIT vote for the next four weeks (our report is due very soon). We are also hearing of banks being sued by an investor surrounding the Agency-Bond market. There are allegations of colluding between traders to manage bid-offer spreads. We will blog on this soon.

We will be providing access to the completed version of Socrates to those who have been on the beta site. This will be for 30 days. The Arrays, Reversals, and other aspects have been updated to current versions. Unfortunately, the preview site was temporary so the updates to the system were not possible since that was a different server. We hope this will be ready by the end of June.

We have been working hard to port this over. That has not been an easy task since much of the original code was written in Assembler (machine language).

We are always taking applications from those with experience in machine learning.

The first Minor Weekly Bearish Reversal in the Dow lies at 17434. A closing beneath this for the week will confirm what already appears to be in motion after electing three Daily Bearish Reversals. The next critical area is 17120, which happens to be a Daily and Weekly Bearish Reversal. This is the primary support. Breaking this area then opens the door for a sharper drop to retest 16000.

We have a more important number for month-end at 17579 followed by 17210. A May close below this level will confirm a correction into the August/September period, which can extend even into early 2017. This should produce a retest of the broader support at 16000 and a breach of that level on a monthly closing basis would set the stage for a new low under that of 2015.

Keep in mind the Fed realizes that it desperately needs to restore some “normalization” to interest rates. The Fed is departing from Draghi, who is destroying the future of Europe, and the Bank of Japan. This is really turning into the “Clash of Titans.” This is also helping to keep the dollar as the only game in town.

Last week, the Dow closed BELOW the technical support level, and, as I warned, that had to hold on any retests but failed to do so. This was the market’s warning between the chaos of the elections. The Fed realizes it has to raise interest rates to try to ward off the growing demands to seize all pension funds in the nation to bailout public pensions in the various States. The future looks a bit cloudy at best.

We need to watch gold as well. If gold exceeds last year’s high of 1307.80, the likelihood of a sustained breakout beyond 1360 is not very good with a strong dollar. However, such a move would confirm an extension of this entire mess and any reversal where there is a sudden crisis in confidence in government within the main segment of the population would probably come in 2017. This makes sense from the perspective of 2017 being the year from political hell. It also would not rule out the ultimate swing for gold to crash to new lows, which would really twist minds with rising rates and the dollar.

June is the first target for a shake in confidence with the BREXIT vote. It still appears they are desperate to rig the vote. David Cameron has been calling upon everyone to paint a dark picture if Britain leaves, which demonstrates how important this is to the survival of Brussels, not Britain. Everyone from Obama to Christine Lagarde have been in London to warn the Brits to stay in line. Even if the real vote is to leave, as Stalin said, “Elections are decided by those who count the vote.” The election fraud in Scotland should warn that this is probably in the bag for the “establishment,” and that does not look very good for Britain.

So hold-on. The markets are still churning. A monthly closing for the Dow beneath the 16000 level will warn of a new low under 2015 going into 2017. Nevertheless, everything will flip when the general public comes to realize that the future looks very chaotic and it boils down to how can you trust. That is when the flip comes from Public to Private.

Keep in mind that the Fed is caught between the worst of two worlds. It needs to raise rates to save pension funds, yet higher rates are going to devastate the bond markets and blow out federal budgets. I have been warning that there will be NO INFLATION as long as rates remain low. Raising the rates is the only way to ignite inflation. Europe and Japan and just brain-dead.

People have been indoctrinated with Marx and Keynes to such an extent that they cannot invest because they are confused and assume rates up, stocks down. They just listen to the talking heads on TV and never grasp the real history of this move.

Therefore, a break to a new low will get everyone offside and assume this is the mother of all crashes. This is when the reversals and timing will help to pinpoint that low. Keep in mind that we need the majority to turn bearish to provide the fuel to the opposite move. This is just the way markets function.

So watch the numbers now. It’s just time. Keep in mind, if we hold the 16000 level on a monthly closing basis then we will just churn back and forth. That is the key area on any decline on a monthly closing basis.

QUESTION: Marty, years ago you did a chart showing the projection for unemployment. I believe I understand what you were projection for the company I work for has been replacing people with technology on a large scale. So we can have rising corporate profits with rising unemployment as technology changes everything. Is there a point when rising unemployment brings down corporate profits for it reduces consumer spending?

Thank you for your consideration

PD

ANSWER: Absolutely. The peak in unemployment during the Great Depression was during the technology shift that was a result of the introduction of the combustion engine. Tractors began to replace farm workers, as agriculture had been 70% of GDP in the mid-19th century, 40% by 1900, and later dropped to 3% by 1980. This technology shift, combined with the Dust Bowl, changed the face of labor dramatically.

Politicians are brain-dead. Hillary claims she will champion equal pay for women and raise the minimum wage to $15. I do not know what planet she is on but such a combination will clearly create a major depression, given we already have this technology shift underway with so many jobs being automated. You park your car, push a button for the ticket, and pay by sticking your card in a machine without ever seeing a person. McDonalds announced its answer to $15 an hour minimum wage – touch-screen cashiers.

The combination of a $15 minimum wage and Obamacare is a lethal injection for the economy. But hey, we elect corrupt lawyers to public office who say what the people want to hear and have no concept of the result if such ideas are implemented.

Tell your children to study computer programming. What will the world be like in 25 years? Will any menial jobs remain?

We are approaching the reality of the movie series “Terminator.” Government is striving to develop robot warriors whose loyalty will never be questioned.

The future will be very much sci-fi. So I am sure someone reading “Twenty Thousand Leagues Under the Sea,” the classic science fiction novel by French writer Jules Verne, never imagined that submarines would really exist one day.

Welcome to the wave of deflation. This trend is already causing people to spend less and save more.