6:46 am PST. Good morning traders! SPX gapped up this this morning, which has been modus operandi for the indices these past several weeks. Up in the morning, and then close red on a low. If we can close green today, that would break the pattern and would be cause for a bullish bias.

I just want to make money. Money is wonderful.

“Currency is shares in the national corporation. Debt is an option on those shares. Currencies rise and fall on confidence, not on supply and demand.” – Martin Armstrong. Trump is talking down the dollar saying it is too strong. Trump is also now unilaterally bombing countries without consultation to anyone else. Yet, the dollar looks bullish. Very interesting.

The 6th Dimension in Understanding the Global Economy is Correlations between sectors of capital.

I am studying the correlations between the US Dollar, Treasuries, Gold, and Stocks. I see fund managers writing that they expect treasuries, the dollar, and gold to rise this year. Which is interesting to me, because I initially disagreed with that theory as I thought only treasuries and gold rose together, while the dollar and stocks rose in opposite correlation together. However, the initial theory makes sense that the dollar and treasuries should rise together if one looks at the market from a confidence perspective. If the rest of the world is going down in flames, such as the Euro, war in Asia, and terrorism in the middle east, then capital would concentrate in U.S. assets such as the dollar, stocks, and treasuries, as well as gold. So then why are the dollar and treasuries moving in opposite directions now?

5:33 pm PST. The 10-year yield looks like a backtest of the breakout from the trendline. Or it could be just a temporary blip to the upside. If we breakdown into the channel, that would suggest new lows. It does look, however, as though this could be support.

I dug up a copy of a note I published years ago when I was in law school. I served as the co-editor in chief of the Cardozo Journal of Conflict Resolution. It is entertaining for me to dig up and look at my old work before I had kids. http://cardozojcr.com/issues/volume-2-1/note-3/

“In October 1998, the United States Congress passed, and the President signed, the Digital Millennium Copyright Act (“DMCA”).[1] Section 512 of the DMCA addresses the problem of Internet copyright infringement suits against Internet Service Providers (“ISPs”). The ease of electronic distribution on the Internet[2] and the freedom of information exchange through the World Wide Web[3] precipitated a significant increase in the user transgression of copyrighted works.[4] Section 512 of the DMCA was the culmination of combined influences from conflicting case law determining the extent of ISP liability for on-line copyright infringement,[5] the Clinton Administration’s Information Infrastructure Task Force (“IITF”),[6] and complaints from ISPs fearing that existing copyright law would render them extinct from high costs associated with liability.[7] The DMCA mitigates an ISP’s copyright liability in connection with transmitting and automatic copying of copyrighted works on their networks. The mitigation is in the form of safe harbors that require an ISP to expeditiously take down alleged copyright infringing websites upon a copyright owner’s notification.[8]”

Everything in life is a gamble, from how you choose to spend your time, to what career path you choose, to where you choose to live, to whom you marry. If we went to the casino and played our best, with some winning and some losing, and at the end of the night they said, ok, sorry we have to split your winnings evenly with everyone else including those who lost, why go? That would take the fun out of everything. That is the contrast between capitalism and socialism-communism.

The situation brewing with North Korea makes me very very nervous. I lived and worked in South Korea in 1997, for the late former president Kim Dae-jung. I still have relatives who live in South Korea. When I think about what Trump is doing now with Syria and now his focus on North Korea, I shiver in the same way I shivered when I walked back to my apartment and I saw the twin towers of the World Trade Center in New York City ablaze and smoking after two jet planes crashed into them on 9/11. I fear that this will be Korea’s 9/11 but much much worse, and this time caused by Trump. Unfortunately I voted for Trump.

I do not even want to write the unspeakable because of what I fear could happen if Trump strikes N. Korea.

I wanted to add on to my comments above. I was born and raised in Los Angeles. I grew up in the United States, had American friends, and hardly speak much Korean. I grew up in a myopic Hollywood version of the world. After graduating from Wellesley, my Korean mother thought it best that I go and live and work in South Korea for at least one year to see the world. She had previously sent me on trips to Russia and Kenya before, but suddenly decided that I ought to go to Korea, perhaps to marry a Korean man, which never worked out. But, I digress. I worked in South Korea in 1997 for the Forum of Democratic Leaders in the Asia-Pacific, an NGO organized under Kim Dae-jung’s Peace Foundation for the peaceful reunification of North and South Korea. I edited a quarterly newsletter in English for them.  As I worked at the FDLAP, my eyes really opened up to how the rest of the world functions and views the United States. Even then in 1997, many Koreans felt anti-U.S. sentiment because the U.S. has a huge military base in the most expensive location in Seoul – Gangnam. Does anyone know the hit Korean song “Gangnam Style”? based on the ultra-hip and wealthy area in Gangnam where the U.S. military base is also located.  Kim Dae-jung ran for the presidency during in 1997, which also coincided with the Asian economic crisis. I saw mass riots in the streets as the Korean won crashed and many Koreans lost their jobs and livelihoods. It was a terrible mess and probably the reason why Kim Dae-jung won, as people wanted change and to get rid of corruption in politics.

The North Korean leaders are bad. Let me be clear, they are just plain bad with this total dictatorship and keeping people poor so they can have all the power and wealth. Kim Jong-il and Kim Jong-un are just bad. Personally, I believe they think South Korea is just a puppet of American leaders and probably have a lot of disdain for their “weak” southern counterparts. The one good thing that came out of the Korean war was capitalism was allowed to flourish in South Korea, helping the south build wealth.

One of the things I learned after working in South Korea, is that even in South Korea, there are a lot of political factions. Just because you are Korean, does not mean you like all Koreans. There are Koreans from the East who have disdain for Koreans living in the South West. And within Korea, Koreans have different accents on the way they speak Korean so you can tell from which region they come from. South Korea is not totally unified.

So, I really do not see how bombing North Korea would solve any problems. In fact, I just see it getting worse. Perhaps Trump could remove the current North regime, but no one is prepared to handle the devastation that would occur as as a result. There would be a flood of refugees that the South could not absorb economically, not to mention the death tolls, and destruction of infrastructure.

On Why People Still Move to the Silicon Valley Despite High Taxes, Corrupt Politicians, and Earthquakes

FB Headquarters in Menlo Park

A few days ago I had a conversation with my friend, Grace Zhao, co-founder of Accuragen’s new cancer-detection technology that is having much success in China, but up against steep regulatory tape here in the U.S. I will get to that conversation in a minute. Accuragen has its headquarters in Menlo Park, the Venture Capital capitol of Silicon Valley.

This morning I went on an internet hunt for a copy of “The Greatest Bull Market in History” by Martin Armstrong. I came up empty. The most I could find was a one page pdf of the Preface. Why is this book not in print? Why is it so difficult to obtain? You would think that with demand high and supply lacking there is a business opportunity for someone to take advantage of to make more copies. Hint, hint!

Having come up with not much in my search, I re-stumbled across Marty’s handwritten pdf report on “Understanding the Real Economy”. He wrote in that report, “It is the Capital Concentration that takes place (1) among individuals, (2) among sectors, and (3) among nations, retaining within each nation, the tendency for capital to concentrate among individuals and sectors.”

The idea of capital concentration reminded me of my conversation with Grace a few days ago. I asked her why do the educated Chinese still love to come to Silicon Valley? Let me tell you that half my neighbors are of Chinese descent – most are sophisticated engineers and doctors. Grace, who did her post-doc at Stanford University, which is a stone’s throw from my home, told me that Accuragen could never have started in China, only in the Silicon Valley. She said the mindset here in the Silicon Valley allows for innovation and creation. The money, i.e. the venture capitalists or VCs, will allow you to burn through money to do research and to develop your product before they see a profit. The VCs understand it could take years before they see money from their investments, and they understand that nine times out of ten, most of their investments will fail. The Chinese will not take that risk. The Chinese want to see a return right away, she said.

For the Chinese they think that once they have money, they do not want to lose it because they fear they may not see it ever again. They do not want to make risky bets on ventures that do not have an immediate return, she said. The Silicon Valley investors have more experience, understand the development process, are willing to invest earlier, and take a slightly more risky gamble. But getting her product to market in China was not a piece of cake, she said. It is only because she can write and speak Mandarin fluently that she was able to persuade doctors and hospitals in China to use her product. Her company still wants their product to go to market in the U.S. She said most likely they want to sell Accuragen to an American company, but “the Chinese have so much money.”

The top minds are still all in Silicon Valley, she added. You also have access to great professors she said. Stanford has a start-up program called “Start X”, which her company utilized.

Interestingly, her VC is a Chinese-American investor. In America, I think some cultural ties still have an effect with how money flows. Personally, I think the Chinese are the newly minted rich and perhaps that is why they only want proven profitable companies. In comparison to the American VCs who have gone through the dotcom tech bust of 2000, the real estate bust of 2007, and yet are still standing with money to go looking for the next new new thing.

The talent and money still concentrates in the Silicon Valley, it appears. Companies need top talent. Without the brains, they cannot innovate. Companies are still paying top dollar to find top talent even though, yes the real estate prices are insanely high, taxes are insanely high, and our politicians corrupt. But it does not matter because you die without talent, so you pay the price to have it.

Plus the weather here is still relatively good and the air is fairly clean compared to China. The Chinese love sending their kids to summer school in Palo Alto. Mountain View has the only museum in the world that I know of dedicated to computer history. And I think Silicon Valley really does not care so much what ethnic background you are, because walking around here if you are Indian, Chinese, Scandinavian, French, or of some other nationality with a mother tongue other than English, you are probably a smart engineer, i.e. wealthy “nerd”, possibly living in a 1,600 square foot house built 60 years ago with an average cost of $1.7 million, or paying $4500/mth for the same, doing some sort of business. Or you are working in a tech related field to gain the experience to reach that goal. This is how capital concentrates in a free market.

I do not expect this to last forever. There is a cycle to everything.

1:01 pm PST. Once SPY broke down from the lower trendline and backtested, traders headed for the exit all afternoon, selling right into the last seconds of the trading day. With a close like that, one has to expect a possible gap down on Monday. SPY could spike down to 230. At the same time the VXX closed just under the pivot and /YM closed just above the pivot.

The UUP bounced nicely off support. I think now the correction is done. A bullish dollar will also mean bullish for stocks, maybe not at the open on Monday, but perhaps by Tuesday.

Barrick Gold gapped down and could not gap fill, closing on the lows of the day. The pattern looks very bearish. I would be careful on the mining stocks, especially with a more bullish looking dollar.

9:11 am PST. IWM broke down from the triangle. The Russell is noticeably weaker than the Nasdaq. It is going to depend on the close today to see if IWM can close back in, and SPY green today. The indices are still consolidating.