Martin Armstrong - Various excerpts, references and notes (on Bitcoin and "cryptocurrencies", the ECM, etc.)
Bruegel. Big Fish Eat Little Fish.
On Bitcoin and Cryptocurrencies
If we are talking about simple Bitcoin as a trading vehicle, then fine. We added it to the Global Market Watch and Socrates because it is a tradable asset. It is really just like everything else that trades. Socrates called the high in Bitcoin simply because it complied with the trading patterns like everything else that is really not the asset, but how humans interact with that asset (Behavioural Economics). Its value is based upon ANTICIPATION and that need not be real, possible, and it may be outright impossible. If you believe in something you react according to your beliefs even if it is completely irrational.
Cryptocurrencies are trading vehicles. Cryptocurrencies will NEVER replace the dollar or world currencies. Do you really think governments will simply allow such a venture to take all their power away without a fight? Cryptocurrencies are worthless without a power grid. That is a disadvantage even to mackerel. That said, it does not stop Bitcoin from being a trading asset, but it is not money. It trades on a belief system of some that are completely irrational of which you will NEVER convince the majority to agree with them any more than they could with gold.
The monetary system will come to an end as we know it today. It will be replaced with an electronic reserve currency among nations. That will NOT be something that you use to go shopping with. I do not care what you call money. It is nothing more than a unit of account and a medium of exchange. It historically sits on the opposite side of assets. Bitcoin is still an asset – it is NOT money. If Bitcoin were money, then it would decline in purchasing power when assets rise.
The year 2018 was the start of the Monetary Crisis. We had a shot that this could all come undone in 2018. However, you are correct. All we achieved was a false rally with the Euro stopping just shy of our number and gold struggled admirably but could not get through 1362.
There were many other markets also confirming that we are dealing with only the beginning of the crisis here in 2018 rather than the conclusion including the consolidation in the stock market without election any monthly bearish reversals. The monetary reset can arrive during the next window in time come 2021 if we get the dollar at new highs. Then the monetary system will crack. However, this could drag out to the third window which is of course 2032. That appears to be more the shift of the Financial Capital of the World to China at that time.
These are the turning points. The Reversals are the key which confirms or denies the trend. My opinion as to the future is still an opinion. I will say this. As long as cryptocurrencies are an asset class, then they will survive a monetary crisis along with all other assets. Assets are the ONLY thing that survives the collapse of a currency.
Tangible assets are on the opposite side of whatever the currency is in use. When the stock market rises, the purchasing power of the currency declines. When the stock market crashes, then the purchasing power of the currency rises. They are on OPPOSITE sides. Do you really want a cryptocurrency to be a currency or asset? Most people pitching them are really explaining an alternative asset – not a currency.
There are a lot of problems with the technology and it would clearly make the entire economy vulnerable to a crisis in the failure of platforms or the power grid. Goldman Sachs sees the opportunity because of all the fraud. They are looking at stepping in as a CUSTODIAN because the integrity of the security behind a cryptocurrency is often questionable.
In war, you target the electricity grid as a first objective and then the total economy would collapse as well as the effort to fund a war. During a war, governments have often counterfeited each other’s currency. The British did that with American colonial currency. If they could undermine the confidence and cause hyperinflation, then funding the war effort would collapse. Today, you would do this by hacking and targeting the power grid.
In all the high-level meetings I have had about this technological innovation, the single greatest concern is would it make a nation more vulnerable during a war? Can a cyber attack simply paralyze the economy? Keep in mind that only about 4% of the economy takes place in cash. The rest is electronic deposits. Therefore, this threat is NOT limited to cryptocurrencies. It may very well be the next way to win a war. Attack the banking system and you will freeze the ability to fund a war. Don’t think they are not thinking about that right now.
Socrates picked the high in Bitcoin perfectly. How? Why? Very simple in fact. No matter what instrument you look at, the chart is not actually that instrument. It is a chart of HUMAN emotion relating TO THAT instrument. The chart of silver from 1980 is similar to that of Bitcoin. Back then, they were touting silver would go to $100. They swore it would do that any day for the next 19 years. We have people in Bitcoin swearing it is going to $100,000 and become the new reserve currency. That is such a joke for any currency to be worth that much would guarantee it cannot be used in commerce since most transactions are small. Then to be the reserve currency means governments would have to issue debt in Bitcoin. Come on! Are these claims even practical?
Bitcoin became the LEADING means of money laundering and movement of cash out of China, circumventing their rule of law and currency controls. So do not think for one minute that Bitcoin rose because it was really a wonderful idea?
The government has the army, tanks, and the guns and soon robot soldiers. Until the army is willing to turn against the hand that feeds them, which is why they are developing robot soldiers, you cannot stand with cryptocurrency and claim some magical right to suppress government and central banks. You need the power grid!
I have been skeptical about the claims that cryptocurrencies will replace all money and central banks and end banking creating money out of thin air. That would be recreating the Dark Age. For that to take place there can be no lending. The mortgage market would collapse and the value of the property would fall to less than 10% of its worth becomes the maximum someone has cash as was the case during the Great Depression. This hatred of central banks is stupid. The money they create is less than 10% of the money supply. The bulk is created through lending and fractional banking.
There was no possible way governments would EVER hand over such power to Bitcoin. These people have no clue about the age of knowledge, for they are trapped in the age of stupidity. A monthly closing below 2950 will confirm the long-term trend is turning down. A year-end closing below 4150 will point to a drop back to 775 area. It was a trading vehicle – not an investment class for the long-term. With the IMF telling all central banks to create their own cryptocurrency and the introduction of Blockchain in experimenting with tax collection, we face a very different future due to technology. However, it will not be a world of free-market cryptos that bring governments to their knees.
With adopting cryptocurrencies that governments would control, we will come one step closer to losing all our freedom. Central banks could enforce negative interest rates with cryptocurrencies and thus people would find their accounts just garnished. You could not hoard cash and withdraw it from banks. They are also looking at this as a way to manage a banking crisis stopping runs on banks. This technology is also causing those in the hunting of tax revenues to lick their lips.
The issuance of digital currencies would allow central banks to remain in control of the money supply far more so than they are today. Sweden is moving forward and there we see that the use of cash is rapidly disappearing.
Cryptocurrency technology would allow also the taxman to just cometh and take whatever he desires in the midst of the economic crisis we face. The Central Banks would be able to maintain greater control over the creation of money through the process of leverage (bank lending).
While the Bitcoin people have hated me for not agreeing with them that a private currency could displace the currencies of all nations and Bitcoin would be the new “reserve currency” killing the dollar, to me they are in serious need of help. They have ZERO comprehension of governmental power and ZERO understanding of what is going on behind the curtain. The IMF has come out and stated that each nation should issue their own cryptocurrency and these fools cheers claiming I am not with it and do not get this new age of technology. Sorry, but these people are really clueless if not perhaps undercover people with a mission to get people willing to surrender their final liberty – paper money.
While cryptobugs advocate gold is dead and Bitcoin will conquer the financial world, they miss the point entirely. The IMF is by no means embracing cryptocurrencies for the same reason these people have claimed it will bypass central banks. The IMF is advocating the end of paper money to kill the underground or black economy solely to aid the hunt for taxes and to PREVENT bank runs. If there is no paper money, how can you run to the bank in a panic demanding to withdraw your money? They also argue eliminating paper money will end crime.
QUESTION: Mr. Armstrong – Neural nets and deep-learning algos are not all that new. However, with the advent of quantum computing power and huge cloud data stores recording every flinch people make, the business world is abuzz that this is the portent for AI to now transform business, business management, and our lives. Of course, trading systems are now being ‘trained’ on datasets. However, regardless the algo, it’s learning capacity is still limited by the extent of the data that it is presented. Since you have spent so much exhaustive work amassing such a long-term financial (and governmental, etc.) database, using even such things as coinage records for your forensics, I have to wonder if these other systems will still have a long run to go before their forecasting power can match that of your models. Do you expect this to provide Socrates an advantage over the new wave of AI market/trading forecasters that will last for some time yet?
ANSWER: The long-term database is essential. That cost more than $100 million to assemble and quite frankly, nobody seems to be willing to spend that much. This is why all prior models have collapsed creating economic catastrophes such as Long-Term Capital Management debacle. They collapsed again in 2007. Nevertheless, then you have the problem of Neutral Nets are just incapable of handling the vast array of variables. The attempts to create trading models are all flat-model based. Our system has made so many accurate forecasts for so long on so many markets around the globe that I do not even comment on. It is far too much for me to even write about. That is the whole purpose of Socrates.
I had to design a completely different programming technique to work out the complexity. Just image calculating every market in the world in 35 different currencies. The number of variables is beyond comprehension. If we are talking about a limited number of variables for normal business operations, Neural Nets are fine. When it comes to market forecasting, they can develop a Deep Learning system on a single market, but without correlating this with all other markets, you will NEVER see the contagion coming. When everything crashed in 1998 because of the collapse in the Russian debt markets, the illiquidity caused funds to sell other assets to raise cash to cover losses elsewhere. The Russian bond collapse caused a massive sell-off in Japanese yen/dollar rate that had absolutely NOTHING to do with the fundamentals in Japan. Contagions always emerge externally so you can create a model and it will work for a while and then you lose everything.
Selections from “Understanding the Real Economy”:
“The Economic Confidence Model that I discovered back in the 1970s was not based on any particular market or economy. It was devised by taking a list of world panics in the economy, irrespective of where they began, utilizing a list of 26 events between 1683 and 1907. It was dividing 26 into the 224 year time period that produced the basic frequency of 8.615384615. Like Adam Smith, I set out upon a course of observation to try to understand what made a cycle even exist. Through the course of my studies of the past and observations of the present, I came to realize that the observations uncovered a rich and dynamic structure of interactivity between mankind himself, as well as nature from weather to earthquakes. In short, what scientists were just then discovering with the aid of computers that could do millions of calculations impossible by hand, that the image of chaos has been completely altered. What may appear to be chaos, is in reality, only complex interaction that can be observed by only pealing back layers upon layers like an onion.”
“Many are aware that the Economic Confidence Model tracks what might be called the “hot” money, not a specific market or national economy. This phenomenon is caused by capital concentration - the very thing Karl Marx hated, the very thing that our modern politicians keep trying to stop.”
“For example, there is a 8.6 day, week, month, quarter, year, decade, century and even millennium layer of time. There are derivatives of time that create different effects still grouped in 8.6 intervals. However, the most significant seems to take place on what I would call the Generational Level of time, a group of 6 waves of 8.6 years that forms the major wave structure of 51.6 years. It is at this level where the extraordinary complexity on smaller levels combines to create major trends between Public and Private Confidence Waves. Groups of 6 waves of 51,6 starts to cause the rise and fall of nations.”
Indeed the previous comparable outbreak of political violence in France was in May 1968, almost precisely 50 years ago. (As a reminder, I define “political violence” as internal collective conflict that occupies the middle territory between individual-on-individual violence (crime) and interstate wars.)
Although most historians disagree with the idea that there are cycles in history (at best, it rhymes), our cliodynamic research has identified a number of periodic processes in historical dynamics. And one of them is the 50-year cycle in political violence (see a previous post on this topic). This cycle doesn’t need to be very precise—in historical data the cycle periods can vary anywhere between 40 and 60 years. But sometimes it strikes with eerie precision, like what we see today in Paris.
In the United States we also see this cycle, which resulted in spikes of political violence spaced almost precisely 50 years apart: late 1960s–early 1970s, circa 1920, and in the 1860s–early 1870s (see my book Ages of Discord for details). It is one of the reasons for my prediction that we will experience a peak of political violence in the early 2020s. (But not the only one: even more important are such factors as intraelite conflict and popular immiseration. Also, that prediction was made 10 years ago, and the way political unrest has been developing here hints that we may have this spike arrive “before it is scheduled”).
“Now that we understand what makes one economy boom against all others, or a particular sector within an economy because Capital Concentrates, now we can look at the ECM with the proper perspective. This is a global model of economic activity that highlights the raw fact that man will speculate no matter what and that creates the Capital Concentration. The ECM gives us the perspective of short-term business cycle movements at the 8.615384615 year level, but this frequency moved both up and down in time in layers like an onion. It builds into groups of 6 waves forming a 51.6 year major cyclical wave where confidence between the people and the state alternate at the generational level. This builds into 6 waves again of 51.6 years into 309,6 year waves upon which nations rise and fall.”
“There are those who no matter what you show them or what you say they will never believe in cycles. For those of us who do, we need that disbelief to trade against. There always has to be two sides to a coin, as well as a market.”
“Look a major collapses from all bubble tops and this is what you will find. The minimum amount of time to complete the fall and decline is this 31-34 month time period except in the Waterfall Events.”
“There has been a lot written about the Science of Chaos. The true person to develop this field was B. Mandelbrot. The science of chaos that produced the fractal geometry I regard from a pure economic perspective as a proof of the existence of layers upon layers, but it offers no predictive value for our real economy in the traditional sense.”
“What fractal geometry demonstrates is that there is no real just chaos, just such degree of complexity that our eye has been unable to see the complex order. Fractal Geometry and its insights is based upon Complex Numbers. For those who do not remember the school days, unlike all other numbers, the Complex Numbers do not exist on a horizontal plane. The Natural Numbers 1 through 9, for example, can be plotted on a horizontal line.”
“Unlike Natural Numbers, Complex Numbers do not exist on a horizontal line. They exist only on an x-y coordinate time plane where Natural Numbers and Regular Numbers on a horizontal grid combine into what we call Imaginary Numbers on the vertical grid. These Imaginary Numbers are simply numbers where taking a negative number times another negative number produces a negative instead of a positive number, i.e. -2 * -2 = -4.”
“We can see from the above illustration of the Economic Confidence Model that there has always been a delicate dance between the effects that follow the path of “time” as the Fourth Dimension adds to the basic equation What-How-Where with the fourth variable “When” and now we have the hidden complex field behind everything that adds the next portion to the equation “Why” that can be explained only by the Fifth Dimension of complex interaction through the process of “self-referral” that allows history to repeat. We are getting closer to the real causes and effects that have tormented mankind and often caused such hardship by the attribution of normal events to the folly of gods.”
Armstrong explains in a blog post (“Panic Cycles vs. Waterfall Events”):
The Waterfall Event is a term I coined to describe what I discovered in the study of the rise and fall of empires, nations, and city-states.
I have encountered the Waterfall Events such as the collapse of Venice to the 1931 Sovereign Debt Crisis where the foreign government bonds listed on the New York Stock Exchange simple defaulted and went to zero. Thus, the Waterfall is a sharp collapse that will unfold in a market with a decline of generally greater than 50%.