muses of the moment

April 22, 2011

Latest Letter from Martin Armstrong dated April 21, 2011

Filed under: Economic Confidence Model Cycle, Martin Armstrong — Tags: — totallygroovygirlfriday @ 3:54 pm

Click here for Martin Armstrong’s latest letter entitled, The Next Wave, dated April 21, 2011 (15 pages). Martin discusses the next wave that begins June 2011 and what it might look like.

So, what does the spring cycle of the K-wave look like?

Groovygirl, we are already sick of this winter phase of the K-wave, long wave, economic cycle. When can we expect the Spring Cycle and what might that look like?

Well….I have good news and bad news. The bad news, it is a ways off. The good news is that winter will not last forever and spring is full of slow, steady growth.

The Characteristics of Spring Investment Cycle (start of the winter cycle was January 15, 2000. It averages 20-30 years. The start of the last spring cycle was June 13, 1949 and lasted until 1966):

  • Fear of return to depression/fragile confidence: right now, every up move is spun as a return to normal growth and recovery (which it isn’t). The spring cycle will be characterized by every downturn becoming a return to full depression (which it will not be). Do not get caught up in the emotions of the herd, know the signs of spring, so you may be ahead of the crowd for the next investment cycle.
  • Gradually increasing inflation: as groovygirl has stated before, she disagrees that we will have a deflationary depression, but instead will experience a hyperinflationary depression. Therefore, the word “inflation” can be misleading. Inflation in this sense will mean the gradual rise in real growth from the production of real things, not the artificial growth or “inflation” of money creation that we are currently experiencing.
  • Slow increase in credit availability: with the increase in real growth will come availability of credit and return of strength and soundness to the global banking/credit system.
  • Interest rates start from very low levels and gradually increase: we will experience a rapid rise in interest rates during the winter cycle as credit is unavailable or very expensive (too expensive for the return on investment). But as soon as the interest rates fall to a new low, after the coming high, it will signal the beginning of the spring cycle.
  • Best investments: stocks and real estate. With low-interest rates, depressed prices, and the potential of future growth, the spring cycle is an excellent time to purchase real estate. Especially, cash-flow real estate that will benefit from the slow, steady growth of the spring cycle. Stocks will also rise, as the economy experiences real growth from increased productivity, not borrowed money, creative accounting, and imaginary balance sheet asset prices.
  • Economy: gradual, but healthy growth. The spring cycle is not the wild ride upward of the 1990’s, but it will be a slow, steady growth.

More signs of the spring cycle:

Interest rate bottom as debt levels reach cycle low

Stock market bear market bottom (the gold/DOW ratio will help determine the stock market low and gold high or the time to sell gold and buy stocks)

Gold high

Gradual increase in employment and business activity. The government will not have to gimmick and spin the stats to make them look good. They will be positive on their own.

Consumer confidence slowly increases in line with growing economy. As people feel more secure in their long-term employment and investment opportunities, they will spend money on wants and needs, instead of saving/hoarding for uncertain times.

Consumer prices begin a gradual increase from very low levels. Since groovygirl believes we will experience a hyperinflationary depression and currency crisis, we will have to use another measurement to determine if prices are really low. Measuring things against the price of gold, silver, oil, is an option. If the USdollar is “revalued”, we will definitely need anther way to compare prices through the winter cycle and into spring. Because of this currency value uncertainty, it is not wise to use this as your primary sign of the coming spring.

Stock prices begin a steady rise and reach a peak at the end of spring. Again, we will have to value stock prices in gold or silver to correctly chart their real value, if the dollar is officially/unofficially devalued during the winter phase. If you are planning to retire during the spring cycle, stock dividends will be an excellent source of income. Just remember to switch to another investment option at the peak of that cycle.

Interest rates rise slowly from historically low levels in line with gradual credit expansion.

Other possibilities during the coming spring cycle:

Spring cycles are usually a time of invention and advancement for public good as real growth moves capital out of hiding and into working for the advancement of society.

Infrastructure is repaired and expanded from the disruptions of the winter cycle. This will probably include energy-efficient mass transportation, alternative energy/electricity, and internet/communications.

Scientific research and exploration advances as government/institutional money moves to research and improvements instead of crisis management. The most advancement will probably be in the biological sciences and nano-technology, with the BRICs taking over space exploration.

In the US and Europe, from a strictly demographic point of view, more of the population will be working/producing, instead of in retirement. So more production in those countries is a given with steady economic growth.

There is a renewed sense of hope and common ideals as a family, nation, or world. The world will become less fractured after the breakdown and wars of the winter cycle, but underlying tensions will still be seen, understood and need to be continually addressed. Think Cold War (balance of global power under the guise of communism vs. democracy), but this will probably be a “cold war” for control of natural resources under the guise of Western religions vs. Eastern religions.

Spring cycles usually see societies fall back into more conservative ideals and ideas (as compared with the previous fall and winter cycles), with those breaking away again in the summer cycle.

Processes that have become decentralized during the winter cycle, will move again towards centralization. But it may not be the centralized format as it was in the previous cycles. Think the fall of the Roman Empire, which after a period of winter chaos, formed into the smaller Nation-States of Europe. Groovygirl is not necessarily talking about national borders moving, but perhaps, state infrastructure becoming more influential than federal infrastructure. Or populations moving on mass and resettling in other areas of the nation or globe, causing investment and infrastructure to reorganize to meet demand.

A shift in global power from the Europe and America to the BRIC countries, especially China/Asia. Although the US will still be powerful, it will be like the shift of power from Britain to America, from Germany/Slavic Nations to Russia in the 1950’s after WWII.

Precious metals will reach a high in price, remain set around that high price as the new normal, or be part of the global currency system. Although, having some physical gold and silver may be a good idea during the spring cycle, other investments, like real estate and stocks, will offer a better return.

Spring cycles generally run between 15-20 years.

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