Update 9 July 2024 at bottom.
Introduction
By now, the reader should know that I rate Martin Armstrong as an economical superhero with his cyclical economic models and their remarkable accuracy. Recently, he wrote about it.
I also follow Raoul Pal, ex co-head of hedge fund sales in equities and equity derivatives at Goldman Sachs Europe. They left the traditional investment world and stepped into crypto - the most insane growth asset of all time. Period.
Super short version
Assets grow when GDP grows when liquidity is pushed into the market when debt grows when money is printed. Thus, all you need to follow is the liquidity cycle. BUT, liquidity devalues the currency which means your assets need to outgrow liquidity and inflation growth.
First, I have to show you the real problem.
Currency debasement and liquidity
The real problem us commoners have is that the currency’s value is going down (debase) due to the liquidity that central banks create. Liquidity is the mechanisms by which they push money into circulation. Here is what Claude 3 says:
The more money that’s pushed into the system, the less value it has. This concept is as old as the mountains, hence why there is no currency dating back to 32AD.
On top of this 8% you can add 3-4% global inflation. SO, if your asset growth does not exceed 12%, you are making your future self poorer.
The cycle
They call it the everything code, and in this video they explain their model and how it predicts the crypto cycle. (Apologies for Raoul’s f-bombs.)
Their formula for GDP growth
GDP growth = population growth + productivity growth + debt growth
This is Armstrong’s global cash flow - money is flowing from red to green - it is net US. The US of A is running the world. More on that later in my religious posts.
The point is that US market health runs the entire globe.
The problem is that GDP GROWTH is slowing down - which is a major problem:
Population growth is declining:
Productivity is going down:
But, debt is growing:
To keep the GDP up, they pump debt to balance out the negative productivity and negative population:
This is where the penny drops. This is a remarkable thought.
So, if growth of debt slows, the economy declines which means it’s technically in a recession, which causes fear and people not spending money but rather saving, and they don’t want that. They want your cash.
This shows the correlation between liquidity and debt:
This shows that the NASDAQ and liquidity is 97.5% correlated, which means that stock growth is mainly a function of the money that central banks create:
If you prefer an academical narrative, read this paper.
John Titus, on his BestEvidence channel, magnificently explained how the Fed pushed liquidity into the market during the Gummy Berry juice problem:
What does this mean for crypto?
This shows the correlation between liquidity and the NASDAQ:
This same correlation exists for BTC (logarithmic):
When liquidity hits the market, the value of several things go up. For the last 3 cycles, liquidity “summer” (yellow) and “fall” (brown) saw a huge increase. We are now entering summer and expect the Fed to push liquidity:
And this shows the correlation with BTC price (logarithmic):
Given their model, this is their prediction for this cycle:
When will the Fed push money into the market? Well, quantitate tightening (QT) started in June 2022. They said they’ll reduce QT starting 1 June 2024.
AND, the buy backs are starting 29 May.
When do you get into Crypto?
Now.
Money is coming.
Update 30 May 2024
The USA M2 money supply just turned positive:
M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.
whydoneit
Why are they creating liquidity?
Debt is spiralling, they cannot handle a recession since there is no fiscal alternative ready to handle a default.
WW3 would create a huge opportunity to print money (create liquidity) so don’t write that off.
PS: Pension funds operate on the principle of a pyramid. The younger people fund the older ones that retire. But, population growth is declining which threatens that model.
Update 9 Jul 2024
Excellent Michael Saylor interview on BTC:
Liquidity: