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Domestic Analysis v Global

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QUESTION: Dear Martin,

I watched your Solution Conference and I appreciated it a lot. Indeed, I hope they will follow your suggestions.

As far as the markets are concerned here you can find attached the latest report of some guys I have been subscribing to since 2010. Their models warned of a possible top in commodities and precious metals for end 2010 / beginning 2011 and, at that time, I appreciated it.

But these people have been calling a TOP in US STOXX since at least 2012 and they have been screaming and yelling since then about a US STOXX BUBBLE, making comparisons with 1929, 1989, 2007 and so on, showing tons of charts and statistics from everywhere. Meanwhile, reading all your writings/posts you have been saying since 2011 that US stoxx would INCREASE because of capital flows from Europe to USA and from public to private. That’s so easy to understand.

At the same time they have been calling for a new bull market in precious metals stoxx since 2012 and they have been blatantly wrong. They have been arguing since then that from 2001 to 2011 there was a bull market in gold basically due to the old paradigm of gold as an insurance against inflation while the new bull market will follow a new paradigm typical of all post-bubble contractions. According to the new paradigm,  reduced mining costs will improve profit margins for mining companies, enhancing their balance sheets and finally shares  prices. According to the new paradigm we should expect a bull market in precious metals stoxx because of the increasing GOLD’S REAL PRICE,  as seen during every post- bubble contraction. While I understand their reasoning, I don’t understand why they have been so wrong about the TIMING.

I respect people’s work, in every field, and I don’t expect these guys to be always write in their calls. Markets are complex and uncertainty is increasing. Anyway, their TIMING in calling a BUBBLE and a MAJOR TOP in US STOXX have been totally WRONG   ( since 2011/2012 ), as well as their TIMING  in calling a bull market in PRECIOUS METALS STOXX ( since 2012/2013 ). And they never apologize for their wrong calls.

I don’t really know what to do with these so called “ market historians “ and “ veteran traders “. We are speaking about people who have been in the field for at least 40 years and have been writing newsletters and developing forecasting models for at least 30 years ! How can they be so wrong ? How can I trust them?

Thank you for what you are doing and for your outstanding blog and services




ANSWER: The problem with the vast majority of analysis has always been its domestic focus. They do not take into consideration anything external. They do not grasp that 1929 was a capital concentration that produced a bubble exactly like 1989 in Tokyo. How is such a bubble even possible when retail participation is at historic lows? The only way we have a stock market crash is the dollar has to crash and that would cause foreign selling as was the cash in 1987.

CapitalFlow-Japan87-89(2) CapitalFlow1919-1940

The difference is the limited domestic view compared to the global external view. It you are ignorant of global capital movement, you will never see the real booms and busts that are driven by capital concentration. It is like saying the entire new age will be all technology driven and therefore the mental ability becomes the major asset. That is looking and judging the entire world by the United States. How is that to take place in Africa, South America, or under developed nations in Asia? This is not a one-size-fits-all world.

The Wealth of a Nation is its total productive capacity of its people, which includes knowledge to brawn. Adam Smith’s Invisible Hand established that. Then there came a great trader who saw the world through international transactions. That was David Ricardo who developed the theory of Comparative Advantage. Each nation should focus upon its ability of its people. It makes no sense to spend $200 from grow lettuce in a desert when you can buy it for 50 cents from some other nation.



Spain had all the gold in the world It was the richest country. It did not invest that money in developing its economy. It was one giant party time. They spent the money before it came in and went bust in the end. The joke at the time was rather blunt, The French unloaded the ships in Spain because the Spanish were too good for such low-level jobs. So the French took the money home and spent their earnings in France expanding that economy while Spain was having party time.

This constant view that gold will rally and the socks will crash, is so primitive it is absurd. They are taking a tiny slice of history and ignoring everything else. They fail to think this through even logically. The metals pay no interest so institutions do not invest in them. They can buy stocks, but not stockpile bullion without income. Those that do have bullion, lease it out for income, but then these people call that manipulation or paper gold.

Just what is suppose to happen with the world? Capital will ONLY go from stocks to gold? What about the traditional flight to quality? They are not historians if they do not address every aspect of the economy. There are people who prefer bonds, others stocks, and others gold and still a younger generation who wants electronic entries on their cell phones. This is not the world of yester-year. The economy evolves with time – it is never stagnant.