QUESTION: Mr Armstrong,
I have been a fan since 1998 and want to understand the concept of phase transition.
If the Dow in Euros continues in a bull market while the value of the Euro is falling, then with the capital flows from EU into the perceived safe haven of the Dow, the Dow in Dollars must therefore have to simultaneously appear as a bull market on steroids, is this what you call a “phase transition”? Or, does a phase transition have to occur in all currencies? Is the capital flow escaping EU sufficient enough to support and accelerate this Dow bull? Is this one of the reasons why you and your models continue to be bullish on the Dow while many Dollar-focused chartists are calling for an imminent top?
-SW
ANSWER: A Phase Transition is predominantly in the host currency. However, it normally soars in all currencies. Comprehending that everything moves according to its International Value was something I discovered thanks to my clients. Having offices all around the globe taught me to look at things from everyone’s viewpoint. I am not married to the left or the right in politics so I have no hidden agenda. I have learned always to go with the flow. This discovery was then essentially down the same path of Adam Smith. Everyone will act out of their own self-interest. That is determined globally according to the international value. If something declines by 50% in its host currency, then the rise will be in kind. This is not keeping up with inflation, but maintaining an international value. Illustrated here is why we had the 1987 Crash for the Dow was not quite making new highs yet.
There was a perfect CYCLE INVERSION whereby the crash bottomed on the Economic Confidence Model to that precise day rather than making a high. So the target worked, but we got a low instead of a high. That signaled new highs ahead into 1989 in dollar terms and then the breakout to record highs in international value that reached its first peak precisely on July 20th, 1998.
Here we are again on the verge of a breakout in International Value. That will take place when the Euro cracks as well as the Yen. The talking head will be talking to themselves as they always do believing their own bullshit. You cannot look at these things with only domestic colored glasses. If you do, you will never see what is coming. That accounts for a rally on steroids or a crash as 1987 because foreign capital saw the G5 Plaza Accord and manipulating the dollar down by 40% and that meant sell US assets.
Rubin started the same bullshit of trying to talk the dollar down for trade purposes. After I wrote again warning not to do this same stupid stuff as in 1987, he shut his mouth.
