Contrary to those continually predicting a stock market bubble and crash over the past 8-9 years, well-known market forecaster Martin Armstrong has been telling listeners that systemic problems overseas would continue to drive capital into the US, ultimately pushing the Dow and the S&P 500 to much higher levels.
Famous for his long track record of accurate calls, Armstrong predicted on our show in years past that Trump would likely win against Hillary Clinton, that the US dollar would strengthen, and that the Dow could possibly swell to 40,000 before hitting a final peak.
None of this was based on political considerations but, as he explained on our podcast recently, was tied to the forecasts of his machine-learning computer model, Socrates, developed over the past 40 years.
We caught up with Martin again to get an update on his outlook, including his belief that we are witnessing the global collapse of socialism, which is actually helping to drive US markets higher. Here's what he told subscribers on whether his 40,000 Dow target is still on track...
Why Most Predictions Fail
Many base their forecasts and predictions on a US-centric analysis, Armstrong stated, but fail to see the bigger picture.
One of the first rules of understanding the markets—whether you are looking at stocks, bonds, real estate, currencies, precious metals, or others—is that they are heavily influenced by global capital flows that judge value on a relative, not absolute, basis.
For example, constant predictions of a collapse in US stock market, US economy, and US dollar fail to understand that conditions in other countries are actually much worse, Armstrong explained.
Because of this very fact, capital continues to concentrate into—and not away—from the US in times of crisis. It won't always be this way but, for now, this relationship still holds.
Collapse of Socialism
One of the biggest predictions Armstrong has been making for years is that we are witnessing the collapse of socialism on a global scale, particularly in Europe, which, though counter-intuitive to most, is actually serving to boost the US stock market.
Ultimately, entitlements and pension promises are falling apart, Armstrong, an avid historian, stated (see Pension Crisis on the Horizon for more info on this). Politicians, who don’t really understand how markets function, have promised short-term gains for political purposes at the expense of long-term sustainability.
“All the socialist agendas are collapsing. All of these ideas have been nothing but a Ponzi scheme. … (Politicians) don't understand how these things happen. … They put out all these wonderful programs, but there's no money to back it.”
What Will Drive the Dow to 40,000?
We’re facing a crisis of government, Armstrong stated, and, at some point, we’ll face a crisis of confidence.
Right now, the amount of money in government bonds and debt is distributed at a ten-to-one ratio against equities, Armstrong noted, and capital flows are increasingly moving into stocks and the corporate bond market for higher returns (see OMFIF’s David Marsh: Global Public Investors Moving Further Into Risky Instruments).
The United States is the only game in town, said Armstrong. There is ultimately no safe place for large investors to park money to ensure a return of principle, Armstrong stated, other than the dollar and US-related assets. As a result, a massive amount of capital is flowing into the US right now.