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January 21, 2016 | Real Estate Cycles & International Value

Martin Armstrong

Martin Arthur Armstrong is the former chairman of Princeton Economics International Ltd. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

Case Shiller 1890

QUESTION: Mr. Armstrong, your real estate cycle turned up from 1955. It does not match the Case-Shiller index which peaked in 1890s and bottomed in 1920 and then began to rally after 1940 into the 1955 period. Something seem strange with that index given the huge Florida real estate bubble which burst in 1927. Can you explain why the Case-Shiller seems to be off so much? Here is a chart that has been going around the Web.



ANSWER: This is the typical problem with people creating an index and then trying to extend it back in time. They ALWAYS ignore the currency and project purely a domestic view. During the 1890s, J.P. Morgan had to bail out the U.S. Treasury for it was dead broke. As people feared the government would declare bankruptcy, private assets rose in NOMINAL terms. This was matched by the massive exit of foreign capital from the USA.

Florida-1The Case-Shiller index bottoms in 1920, but this was the point of a massive rise in the dollar’s value. Foreign capital poured into the USA to park because of World War I. This, in turn, led to wild speculation in Florida, which as you correctly stated, burst in 1927. Because rhis isdex is national, it also suppresses regional booms. As real estate peaked in Florida, the hot money then shifted to stocks creating the Phase Transition into 1929. It was this capital flows between asset classes into stocks where that concentration led to the 1929 bubble.

The Case-Shiller index, which suddenly rose from the Great Depression, does not take into account the dollar devaluation that sparked that rise as it did in equities. That was virtually a 60% devaluation of the dollar that moved it from $20 to $35 on a gold standard by FDR. Was that rise “real” or currency related? Sorry, the real rise begins post-war from 1955. That was the real housing boom.

The Case-Shiller does not accurately reflect the changes in currency. One must look at everything in terms of international value before they can see if they really made money or just broke even because the currency declined. From a value perspective, the 1929 high was more than three times that of the 1890s. So the high of the 1890s was purely a rise due to the collapse in the dollar; it was the hallmark of the panic of 1893 and was best expressed in Grover Cleveland’s speech before Congress.



We use international value rather than nominal local currency. If you fail to use the international value, the end result will always be erroneous for you will NEVER see when foreign capital will rush in or flee. You simply must look at the world in this manner or you will lose your shirt and everything else. Those who thought gold was in a bull market after the 1980 Crash, lost a lot because they failed to grasp international value.


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January 21st, 2016

Posted In: Armstrong Economics


  • Avatar august says:

    Mr Armstrong. I look forward to reading your emails every day. Would you know if Vancouver condo market will see a big decline starting now or anytime soon? Thanks. August.

  • Avatar Sam says:

    Dear Mr. Armstrong,

    I wonder specifically if Metro Vancouver area’s real estate price will go up or fall down or stay still this year. Canada’s housing price, especially in Vancouver, has been in different track from US’s ones because of the influx of the money from abroad like China and the low interest of mortgage. They brought cash for purchasing houses without any subjection and immigration visas. Housing price leaped almost double in some areas. I really want to know if your forecast on global economic crisis will still be valid in this very weird market.

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