Wednesday, June 14, 2006


8.6-Year Review
By Martin Armstrong / Princeton Economics _______________________________________________ As a brief introduction to the 8.6-year frequency within the Princeton Economic-Confidence Model, let us follow its course beginning with the last major panic that took place in October 1929 from the US perspective. Factoring in the month of October as .75 to represent a decimal portion of the calendar year, the calculations embark on their journey with 1929.75 to see how well the cycle will hold up in forecasting the past 52 years. The next step was to add 4.3, half the cycle duration, to come up with the next bottom. It projected 1934.05 which would have been January. This year marked the Gold Reserve Act and the beginning of the New Deal. As a result, it also marked the beginning of the turning point in that human emotion known as hope. The stock market had actually bottomed in 1932 and in the later part of 1934 it had begun a rally that would double the Dow Industrials by March of 1937. Continuing on, we apply the next half cycle of 4.3 years which brings us to the next peak projection of 1938.35. This was extremely close to the real events. The stocks had peaked early, a s they always do in a recovery. The long-term trend in the business cycle had rallied from a -38% to -10% in growth according to the Cleveland Trust Co. Index of US business activity. Despite the fact that the growth was still negative, it was a strong improvement within the economy that began to fall off reaching a -18% during 1939. The next bottom, projected out by adding another half cycle of 4.3 years to arrive at 1942.65, which corresponded to the beginning of World War II and another beginning of an economic boom. The Dow Jones Industrials had been declining since March of 1937 when it peaked at 194.40. the Dow eventually bottomed out on April 28th, 1942 at 92.92. From there the Dow would begin another 4 year rally. The 8.6-year cycle was holding up very nicely. From 1942’s bottom, the cycle peaked again in 1946.95. This corresponded with the end of the World War II period and the beginning of the post war recession. The stock market had peaked during 1946 at the 220 level on the Dow and for the next three years the Dow traded sideways between 160 and 200. Moving ahead, the next bottom was projected to arrive at 1951.25. The 1949 recession was a deep one in which the US did not begin to pull out until 1951. Although the business cycle began to rise due to the Korean War during mid 1950, it actually peaked during mid 1954 at a +18% on the Cleveland Trust Co. Index followed by a sharp drop to a -2% in 1954. The Dow had started to rise during 1950 and remained in a bull market rising from 195 to reach 525 by 1956. The next cyclical peak projected out to be 1955.55. The Dow had pulled off a 250% rally between 1950 and 1956 and then fell sharply by 100 points going into 1957. The business cycle peaked during October of 1955 rising from a -2% in 1954 to a +8% growth factor during 1955. The cycle at this point appeared to hold up very nicely, being off no more than 1 year at any point. From the 1955 projected peak, the next cyclical low was due in 1959.85. The Dow had actually bottomed during 1957. During 1958 and 1959 a bull market once again returned to the Dow

Industrials. The business cycle fell from the 1955 high of a +5% to a bottom during 1958 of a 7%. Early during 1959 the business cycle growth bounced back to a +6%, but in the last quarter of 1959 fell again reaching a -1%. The next peak on the 8.6-year cycle projected out to be 1964.15. During this year, silver coins became extinct and inflation, as measured by the CPI index, had reached 92.9 which was nearly double that of 1929. Industrial production rose in its index that year for the first time to exceed the 80 level after bottoming out during 1932 at 11.6. The Dow was still strong, reaching a high during 1964 near the 890 level only to continue to eventually reach 1001.11 during 1966. The cyclical projection then called for a bottom on 1968.45. The Dow had peaked on February 9th, 1966 and a sharp 260 point decline had begun. Inflation had continued to mount in much of the world. The United States and six West European nations agreed on March 18th, 1968 to discontinue the sale of gold to private buyers. The next cyclical projection pointed to a peak in 1972.75. The Dow Industrials had rallied from a sharp decline which saw the Dow bottom at 627.46 on Tuesday, May 26, 1970. From that low, the rally in the Dow peaked at 1,051.70 on January 11, 1973. That high would remain a major record high going into the 1980s. This projection was accurate because the 1973 recession was a serious one, marked by the failure of the Franklin National Bank. It would serve as the worst recession since the 1929 panic. The next projection came up with a bottom during January 1977.05. The early peak on the Dow during 1973 was followed by a severe panic decline that dropped even below the previous cycle low in the Dow. The bottom came on December 6th, 1974 after nearly a 50% decline. Despite the fact that gold began its rally during August of 1976, the economy didn’t begin its inflationary upswing until 1977. The next projected high on this 8.6-year cycle called for that peak to come in at 1981.35. This was the precise month when the bond market reached a bottom and interest rates began to turn downward. But, from that 1981.35 peak, the next projection called for a decline into 1985.65 which marked the end of deflation as the stage was set for a new global economic trend. Thereafter, the next two major turning points are 1989.95 and 1994.25. December 1989, (1989.95), was the major turning point for the Japanese share market and real estate prices worldwide. In addition, it also forecast that the first stage of recession would unfold moving into a bottom in January 1991. Now that same cycle is pointing upward moving into February 1992 and, indeed, the economic numbers are just now showing that the worst of the recession is over. While the majority did not speak of recession until December 1990, our model was forecasting that the decline would unfold years in advance.



Wednesday, July 4, 2006


Martin Armstrong – Discoverer of the 8.6 Year Business Cycle

From: NORTH AMERICA'S TOP ECONOMIST - EQUITY MAGAZINE – 1990 ____________________________________________________________________________ Discovered by dividing the number of major panics into a given time frame - Armstrong's 8.6 year pi cycle (pi*1000=3141 days or 8.6 years) has had many direct hits to the day on various market indexes, commodities and currencies, producing billions to one odds against it being just a meaningless coincidence. Similar to Benner's Cycle which is based around a 9 year cycle, Armstrong's cycle gives dates down to the day years and decades ahead of time, not just a yearly date as Benner's shows. Armstrong's is much more precise. So much so that the CIA and Chinese government tried to aquire his 32,000 variable super-computer model in the late 1990's unsucessfully. Claimed error's in judment in managing money do not lessen Martin Armstrong's accomplishments of his computer models. His work is still brilliant and deserving of a Nobel Prize. ________________________________________________________________________


Wednesday, July 4, 2006


Princeton Economic Confidence Model – Private 51.6 Year Wave (1981 - 2032)
By Martin Armstrong / Princeton Economics ____________________________________________________________________________

Research by Martin Armstrong has shown that the number of panics in a private wave, as we have been in since 1985.65, increases at least 100% over a public wave such as the last one that started in the Great Depression of the 1930's. The reason panics increase during a private wave is because of the nature of free markets, being driven by individual initiative they are inovative and fragile, perhaps like a young plant, not all seedlings will survive and grow to be strong healthy plants. Government on the other hand is always there, no matter how badly they manage things they ultimately own everything, if a private company or individual does not pay their taxes, everthing just goes right back into the hands of government. The model predicted the crash of 1987 to the day during which time Martin Armstrong indicated that it was not the start of the next great depression as some said, but was just the first serious panic in the emerging new private wave. Looking at the chart of the model one can see: The start of it in 1981 which was the end of the last 51.6 year confidence in public sector cycle and the start of the new private wave which will last into 2032. Next date - 1985.65 (.65 of the number of days in the year) was the major turn in the British Pound/Us dollar ratio. 1987 date was the low in the US stock markets crash to the day. 1989 cycle date was the high in the Japanese Nikkei and Martin Armstrong warned that it was going to go down 20,000 points within 10 months.1994.25 showed the low in the SP500 to the day and the start of the mania of the 1990's.1996 turn showed the high in the US markets at that point. 1998.55 was the high in the US stock markets to the day and led to a 20% panic sell-off and a crisis with a derivatives company which the government stepped in to save. Mr Armstrong predicted this would be a major event almost a decade before it happened! It was also the real peak in the markets as measured internally. 1999.62 was the low in the Gold price after a 20 year bear market.2000.7 was the final high in the SP500 for the roaring 1990's bull market. 2002.85 was the end of the bear market in the US stock exchanges, as Martin had forecast. It was also a bigger cyclical trend for rising commodity markets which Martin had forecast long before. One other thing happened on that cycle of November 8,2002, it was the day that the UN handed down its ultimatum to Iraq to comply with its demands, not long after President George W. Bush


invaded Iraq on a false charge that Iraq had weapons of mass destruction, refusing to let the UN do its job of inspections, even though the UN protested. Martin had forecast that war would increase after this turning point, although he thought it would increase with China and Russia trying to hold onto past glory with their satellites. In general Armstrong thought that this part of the cycle led to increased war which was and unfortunately, is correct. 2005 turn saw a low in the US dollar index with a sharp reversal to the upside. 2007.15 is projected by Martin to be a peak in commodity prices including Gold, however it could extend out into 2012 according to him. What lies beyond this time period is somewhat of a mystery as Marty and his computer can't talk anymore, however he has warned since at least the early 1990's that a major international debt crisis was a certainty, hence his statement - "my view of the future is not a very nice one". The 51.6 year confidence in private markets wave will end in 2032 leading to a major low in 2037 - this could be a variation of what we saw happen in 1929, which would then lead to another 51.6 year wave with government falling into favor as the savior once again.





The Armstrong Affair
By Chris Powell _______________________________________________ The following is a statement issued this week by the Princeton Economic Institute, which defends the recently arrested financial analyst Martin Armstrong. The PEI statement is followed by a reply dispatched therefter by GATA Chairman Bill Murphy. Since I corresponded with Armstrong a few months ago on behalf of GATA and since that correspondence has been quoted since his indictment, I will take the liberty of a making a few observations here. The statement by the Princeton Economic Institute accuses GATA of "outright slander" of Armstrong for GATA's suggestion that his operations were short gold. But that suggestion was made only after his indictment, and only after a statement by the Commodities Futures Trading Commission that Armstrong's operations had positions in the precious metals markets. Since Armstrong had predicted publicly and to GATA that the price of gold would fall to $200 before rising, any error on GATA's part here would be only that of taking Armstrong at his word. If there is any serious dispute about Armstrong's positions in the precious metals markets, it can be quickly resolved by disclosure of the books of his operations. I would be surprised if Armstrong's operations want to carry the matter that far, but we try to be decent people here and we will make corrections forthrightly and graciously when we are shown to be in error. Secondly, the PEI statement accuses GATA of blaming Armstrong for the bear market in gold. We never did that. PEI confuses us with others. I know that other adherents of the gold cause HAVE blamed Armstrong for the decline in the price of gold, because of his widely distributed analysis. Indeed, prior to his recent troubles I saw attacks on Armstrong that were personally abusive and even scary. Some of those attacks were turned against GATA when I engaged Armstrong in a cordial correspondence and published some of that correspondence here. Yes, some adherents of gold seem to have considered Armstrong the Antichrist. As for me, I never had to make such a judgment and I continue to reserve judgment on him. Oh, I know what the federal indictment against him says, and I will watch the legal proceedings with great interest. But I would remind people that the defense he appears to plan -- that his trading losses were honest and that he really was not operating the Ponzi scheme that has been alleged -is plausible prior to any examination of the evidence. And Armstrong doesn't have to prove his innocence; the government has to prove his guilt.


Further, I would be sorry for anyone's honest losses, having incurred plenty of my own as an advocate of gold. In any case all I really do know is that Armstrong was cordial and decent to me, and I was the same to him in return. Much is being made of Armstrong's lack of formal academic credentials. I don't know whether his economic forecasts generally have been as good or as bad as has been claimed, but I know from experience that the most credentialed people and the people most obsessed with credentials are often the least competent, and having no college degree myself, I can't help but believe that there are other ways of getting educated. GATA is after the truth and seeks justice, not the destruction of individuals. Prior to his indictment, Martin Armstrong was simply someone of renown with whom we had agreed to disagree about some things. While GATA does not advocate a gold standard, we believe that gold's traditional monetary function as a measure of national currencies and as a competitive form of money is crucial to economic justice everywhere. It is amazing to me that only eight months after its formation GATA has become the target of some entities more powerful than we can imagine. I believe that this is because the gold industry is demoralized, because leadership of the gold cause has defaulted to us, because we carry its flag proudly, and, most of all, of course, because we are right. In a recent essay Armstrong disparaged GATA as a "two-man army." In fact GATA has three officers and several hundred active supporters. But even so we can be perceived as such a threat to the established order only if we may be right and only if justice really may be on our side. If so, then with Martin Armstrong and with everything else here.... Fiat iustitia et ruant coeli. That is: Let justice be done though the heavens fall. CHRIS POWELL, Secretary Gold Anti-Trust Action Committee Inc.



Statement of Princeton Economic Institute
September 20, 1999 _______________________________________________ The Princeton Economic Institute is an independent research organization and is not owned by Martin Armstrong, nor is Mr. Armstrong a director of the Institute. It is NOT related to Princeton Global Management or part of Princeton Economics International, nor does it engage in the management of any funds. Our daily forecasting reports, Global Market Watch, and system models used at Princeton Economic Institute are independent models that are not the product of any single analyst. It is our intent to continue to publish our research and bring an independent and objective information to our many loyal clients around the world. While Mr. Armstrong has always been an outspoken opponent of government manipulations, interventions, and "the billionaires' club," his direct warnings about the political corruption in Japan and the billions of dollars in hidden losses within its financial system, in some cases carried out by ex-MOF officials, have put him in the direct line of fire by the Japanese government as the man they most wish to discredit. No doubt his highly critical stand against the accounting systems used by all governments that distort CPI, GDP, trade statistics, poverty statistics, and taxation have not made him very popular in some circles. His outspoken warnings about the failure of the Euro have also created a few enemies. Mr. Armstrong has always been aware that his research has made him a target over the years; nevertheless he has always stood his ground. Mr. Armstrong's involvement as an activist in governmental reform is well documented, particularly in the field of global tax reform and its impact upon the economy. He stood by his convictions against the birth of the G5 back in 1985. When his Economic Confidence Model pinpointed the precise day for the low during the crash of 1987, he stood alone calling for new highs into 1989. His research was even requested by the Brady Commission, charged with investigating the incident, and some of our clients were on the commission itself. He became famous in Japan when his model also projected the high for the Nikkei in 1989 and he boldly warned that the market would collapse by 20,000 points within 10 months. His research forewarned of the bull market in U.S. and European equities in 1994, calling for the Dow to reach 6,000 by 1996 and later 10,000 by 1998. His research warned of the Asian crisis in 1997 and of course his model was able to project the collapse of Russia, which made headlines in the London Financial Times. His warning that the Euro would fail made him an enemy to some political groups in Europe. Of course, when the very same model that pinpointed the 1987 Crash, Tokyo Crash, and the birth of the bull market in equities also gave July 20 as an important major top last year, the validity of more than 20 years of his model became undeniable. As staff members here can attest, even the CIA approached this office requesting that Mr. Armstrong assist the government in duplicating his model just last October, but he refused offering advisory services, insisting that the model remain proprietary.


Mr. Armstrong was invited to China by the government, where the Chinese made a similar proposal to obtain his model following his successful forecast of the Asian Crisis in 1997. Even after a visit to Princeton in 1998 by a representative of China, Mr. Armstrong still refused to cooperate with the Chinese, insisting that the model remain proprietary. Even the Gold Bugs have tried to join in on the issue, claiming that there is a huge short position in gold of 20,000 ounces and that the demise of Mr. Armstrong will now lead to a bull market. Once again, there is no huge short position by anyone, and this is another example of outright slander by GATA in a futile attempt to blame Mr. Armstrong for the bear market in gold simply because of his warnings of coming central bank and IMF sales more than one year ahead of the general media. Mr. Armstrong's warning that gold would decline has generated even personal threats sent to this office by some crazy Gold Bugs. There are many who have a vested interest in trying to discredit Mr. Armstrong, including one financial institution, in particular, which stands a lot to gain. They may all try to kill the messenger, but they will not change the forecasts he has made for the future. Mr. Armstrong flatly denies the allegations made against him and he intends to vigorously defend himself. His attorney has stated publicly that he is being made a "scapegoat," but the media prefers to print the propaganda handed directly to them by his opponents. The Japanese press is blaming all foreign firms for the demise of the Japanese financial system and even the FSA has publicly stated that they will investigate all foreign firms in Japan with a new nationalistic zeal after the Credit Suisse affair. If Mr. Armstrong is misquoted by the media in any response he would make, it can be used against him by the government. This is why his legal advisers insist upon his silence until he is heard in a court of law. Any similarity to the Credit Suisse situation has been totally ignored by the Western media and they prefer to try to discredit Mr. Armstrong's research of the past 20 years. At no time has Mr. Armstrong ever misrepresented his background, as confirmed by Mark Pittman of Bloomberg in his article of September 14. Pittman interviewed Mr. Armstrong two years ago for Bloomberg. After all, Keynes, Ricardo, and even Adam Smith became important contributors to economics without any formal degree in the subject, relying instead upon unbiased experience and observation. The staff of Princeton Economic Institute greatly appreciate the numerous responses of support, the gifts sent to the staff to cheer them up, and those who have come forward offering even financial support to insure the long-term survival of this operation. We will keep our clients updated as to any developments in the near future, and the staff here will do its best to keep the flame of free speech and objectivity alive. It is not an easy task.



What is Going On Here?
Reply by Bill Murphy / Chairman, Gold Anti-Trust Action Committee Inc. _______________________________________________

Do any of you find it particularly odd that two recent and notorious financial disasters have taken the time to take on GATA about what we have had to say about the gold market? First, Eric R. Rosenfeld, a partner in Long-Term Capital Management, which had to be bailed out by various financial institutions through the orchestration of the New York Federal Reserve, sends an affidavit to GATA. Rosenfeld said, "I submit this affidavit in response to the allegations of Bill Murphy, chairman of the Gold Anti-Trust Action Committee, that Long-Term Capital Management L.P or any fund managed by LTCM or any affiliate thereof, including without limitation, Long-Term Capital Portfolio L.P., was involved in the manipulation of the gold market." I wrote a letter back to LTCM's attorney, James G. Rickards, Esq, to ask him to elucidate just one instance where GATA indicated that LTCM was part of the manipulation of the gold market. Rickards since has departed from LTCM without ever responding to me. The bottom line is that we never suggested that LTCM "manipulated the gold market." We and countless others just surmised that half of Wall Street had heard that LTCM had borrowed about 300 tonnes of gold and was using the proceeds for investment purposes. Now another financial fiasco: the Martin Armstrong/Cresvale International Ltd./ Princeton Global Management/Republic Securities ordeal. Princeton Economics International, the home-based research arm of this operation (I guess), continues to take on GATA. I suppose this is so because I intimated in commentary at that we have heard from the best of sources that Armstrong's operations may be short or may have borrowed up to 746 tonnes of gold. PEI has the nerve to come out attacking us today in this press release when Armstrong is the one who did the attacking by publishing a essay on June 10, 1999, called "Gold: Manipulation or Exaggeration?" This commentary was circulated all over the world and this is how it started out: "A two-man army calling itself GATA has begun to besiege the media, attempting to gain a lot of press on the platform that gold is being `manipulated' by a cartel of investment banks. They constantly point to what they call the huge `carry trade' in gold, where there is far more gold sold than exists." It would appear that a front-page story Sunday in the business section of the London Telegraph by Economics Editor Bill Jamieson has the PEI people in a tizzy. Here is one quote from the story: "Armstrong had so many fooled. He came across as Mr. Academia."


In that story Armstrong is quoted from a letter he wrote to GATA Secretary Chris Powell: "I hate to tell you, but gold will drop to under $200 until it turns -- and I do not want to hear how I am short or some nonsense to try to discredit my views, because it is not true." OK, Martin. Now let us go to the videotape or, even better, to this Bridge News article of Sept. 14, 1999: "The Commodity Futures Trading Commission said financier Martin Armstrong, who is accused of defrauding Japanese investors out of about $1 billion, had a variety of futures positions including yen, crude oil, and precious metals. However, Daniel Nathan, deputy director of the CFTC's division of enforcement, declined to quantify these positions or losses. "While market players have speculated that Armstrong and his companies, Princeton Economics International and its subsidiary Princeton Global Management, had maintained large positions in gold and silver, Nathan would not provide any specifics on Armstrong's precious metals trading activities. "Rumors started to circulate today in the precious metals trading community that Armstrong has been liquidating short positions in both gold and silver futures. However, the freezing of the accounts would prevent any activity from taking place, Nathan noted. On Monday the court appointed a temporary receiver with the power to take possession of assets and property and records of PEI and PGM." Armstrong stated categorically to GATA he was not short gold. This statement by the CFTC strongly suggests otherwise. If Armstrong traded his PEI pontifications, he was short oil, short yen, long bonds, and short gold. The only winner this year was the short gold position. Yet while proclaiming to the world that the price of gold was going to $200, he then denied he was not short the only one of the four previously mentioned trades he was right about. I could go on forever, but I think you all get the point. This strains credulity. So that bring us back to why the two biggest financial disasters in memory have gone out of their way to deny being short one of the few good trades they had on their books to a "mouse" like GATA. I suggest to you that it is because.... THEY ARE STILL SHORT. Or the people responsible for them now are short in their behalf. You have heard me say this before, so I will ouch on this only briefly tonight. The shorts are in big trouble. They had no idea of how bad it was going to get for them. They had no idea of how big the supply/demand deficit was. They had no idea of how big the gold loans were. NOW they have an idea and they know they have a tiger by the tail. That is why they are manipulating the market. They are scared to death. That is why the lease rates won't go down -the one-month lease rate was 4.3 percent today.


They are all running around saying the open interest on Comex is going up (almost 210,00 contacts) and the lease rates are high because everyone wants to borrow gold to sell it. Yet no one says why they so much want to do so, nor does it make sense. Why is everyone so excited about selling $255 gold at 4.3 percent interest rates with oil headed for $25 per barrel, commodity prices rising, and bond yields rising everywhere? And we are headed into potential Y2K disturbances with potential liquidity problems. On top of all that, physical demand for gold is at record levels and the bullion dealers tell you how tight the physical market really is. So why drool over borrowing gold at high gold lease rates and entail all that risk? The gold cartel is a desperate lot and they are feeding out garbage to the press and to the public. That is what they feed you -- disinformation. I am hearing that there is so much demand for gold around $253.50 (much of it coming from India) that the bears are actually afraid for the price of gold going down because it will exacerbate the physical gold tightness problem. This is has been a nightmare for us. Soon it will be a nightmare for THEM. The gold and silver markets are going to rock and roll. It is only a matter of time now before the REAL GOLD MARKET is exposed. Then a "Hannibal Cannibal" will panic and run for the hills. That will be the beginning of the end for the gold market manipulation crowd. These characters will have no more time to lob salvos at GATA. They will be too frantic and busy trying to find a way to cover their shorts. Bill Murphy GATA Chairman



Monday, August 21, 2006


The Enigma of Martin Armstrong
By Cassandra Does Tokyo _______________________________________________ Some memories fade, but are not forgotten. The same holds true for certain personalities, particularly the bizarrre and eccentric. One such notorious individual is Martin Armstrong a.k.a. Princeton Economics a.k.a. self-professed expert in the history of money and things gold, and of course, true to my theme of things Japanese. He was accused of Ponzi fraud and the purveyor of the notoriously unvaluable "Cresvale Bonds" that besotted Japanese corporate investors and populated their portfolios, much to their eventual chagrin. Coincidentally, in a bout of synchronicity, I was wondering only a few weeks ago what's become of him and was preparing a post, so it is timely indeed that after languishing for six and a half years in a Manhattan jail cell, he finally pleaded guilty to charges fo Fraud on Thursday, August 17th 2006. In a nutshell, Martin Armstrong was a confidence trickster, if not a fraudster for which he was accused. Martin Armstrong was also a bad trader. A very very bad and inept trader. And Martin Armstrong committed fraud to cover up his bad trades. And then he committed more trades to cover up his fraud. Most in Nikkei and Gold. Despite the laughable ineptitude with which he implemented his "strategies", by most accounts he was smooth, suave and authoritative, in a way that encouraged people to entrust to him their money. Which he duly lost. Many many hundred of millions of US doillars. Perhaps billions. The official court dockets (available on-line) from his 1999 indictment in the Manhattan district of US Federal Court read like a Shakespearean comedy. The more he traded, the more he lost. So much and so bad were his trades that his colleagues, and brokers mercilessly joked about it behind his back. He was so consistently wrong-footed in his bets that he would have done far better flipping a coin to decide whether or not to be long or short. Or use the infamous "8-Ball" method. Or consult Nancy Reagan's financial astrologer, or ask the advice of Paul Wolfowitz. Anything but use his own judgement. Though his company, Princeton Economics, had head offices in the US, he traded from Tokyo in an office overlooking the gardens of the Imperial Palace. For Japan has a special place in his scheme. You see, the Japanese too, in undertaking their own form of speculation known as Zaitech, had lost billions in late 80's and early 90's on dubiously-thought-out wrong-footed speculation and investment. Like Martin Armstrong, and other agent-trader victims shell-shocked by large lossess, they were too ashamed and emabrassed to tell their shareholders that they had punted wrongly, or in UK football vernacular, scored an "own-goal". Not willing to "come clean, they found themselves with a serious problem and yearned for a clever and tidy solution that would absolve them of the thing they feared most, which was NOT the losing of the money itself, but accepting responsibility, a dilemma not unlike that faced by I. Lewis "Scooter" Libby. Enter Martin Armstrong and the almost forgotten Cresvale Securities. He too had a problem since his golden-tongued investment plans, proved rather less robust than hoped [and promised] and


resulted in large trading losses for his clients. It seems that he was able to continue his scheme and make payments to the clients who redeemed by using the proceeds from new investors. This, however was proving more difficult as losses mounted, and so he need new clients. Big clients. Well-heeled clients who wouldn't be asking for their money back any time soon. Like money from a dead persons trust. A better yet, a dead-pet trust. Or even better: a Japanese corporate client that themselves had a dirty big secret to hide. And so they found each other: the companies, like an inveterate gambler, desperate for an investment saviour who would, over time, regain their previous losses, rescuing them from humiliation and shame they most dreaded (not to mention a demotion to the Corporate Travel Office, or Janitorial Services Dept.) and Armstrong, now with a fresh load of clients, and more importantly, their cash. In between them stood Cresvale Japan, the securities firm who brought them together, gave legitamacy to both their pursuits, and took nice fees out of the middle in the process, and in so doing torpedoed themselves out of existence. The scheme worked something like this: Japanese Corporate 'Y' perhaps lost $100,000,000 speculating through a subsidiary, selling Nikkei Put Options or buying boatloads of overvalued shares after consulting with Madame Inoue's Buddhist toad. They were able to hide this for a while by playing "pass the parcel". perhaps between offshore subsidiaries with different yearends. Thus their consolidated accounts still showed these losses as assets at their full value on their balance sheets. So Armstrong/Cresvale prposed they swap $50,000,000 of new money for a "repair bond" with a maturity value equal to the full $150,000,000 ($100mm of losses + $50mm of new money) and then let Magic Martin do his thing. If things went right, they would make their money back and everyone wins. If something goes wrong, well they can blame the investment losses on Armstrong, call it fraud, and take write-offs, without having to take responsibility in the first instance. (note: this is sketch of the essence, not the actual details). This is all interesting, but what really fascinated about this story is that in the mid-90s, certain unnamed American value investors had eyed a number of Japanese companies that they believed "cheap" because they seemed to have large amounts of cash & marketable securities on their balance sheets, relative to their now-diminished market capitalizations. In some cases it was in excess of their entire market capitalization. Many reasons were put forth explaining the phenomena such as: "empire building"; "saving for a rainy day"; "deflation"; "management conservativeness"; "investor pessimism"; "adverse taxes upon large distributions"; "legal inability to conduct share buy-backs" etc. All seemed somewhat plausible. Conspicuous by its absence, except as speculated by the most hardened, battle weary cynical gaijin observers was: "because it doesn't exist". But clearly some people HAD to know about their losses. For other foreign banks were in the repair bond business. And many of the companies themselves were household names. Maybe their businesses were not as fraudulent as Armstrong's, but nonetheless their audited accounts and actions were meant to deceive shareholders by masking losses and allowing them be amortized over many years. Annd since we are writing it, we all now know that things didn't go according to planned. When the Armstrong fraud broke, many of the guilty Japanese Corporates had to come clean. Sort of. They said they were victims of fraud (and some truly were unsuspecting purchasers of Cresvale Bonds), but the "repair Bond" concept and angle was often lost on most observers. Yakult Honsha (TSE#2267) was said to have $1bn of losses, as well as engineering firm Chudenko (#1941); specialty chemcial maker Gun-Ei Co. (#4229) pharma co's. Kissei (#4547), and Towa Pharm (#4553), machine-tool giant Amada Corp (#6113), pneumatic specialist SMC (#6273),

eletronic parts mfgr Alps Electric (#6770) advertising agency Asatsu (#9747), office furniture maker Itoki Crebio (#7972) and more than 50 other firms were deemed to be "stung". Yakult's losses were so big that they couldn't blame Armstrong, but many other co.s did, and were "absolved" of culpability for their original sins. The epilogue was that Armstrong, accused of Fraud, sat in jail for contempt of court, not brought forth to trial for failure to turnover evidence and in particular, tell authorities the whereabouts of $15mm of gold and silver coins and bronze statues he'd squirreled away. It was the longest such languishment for contempt in United States history. All the while, he's claimed that he was innocent of the fraud. I make no judgement here, but it seems likely from the court documents and testimony that he did commit fraud in the form of the ponzi that used new proceeds to pay old losses. His brokers, Republic Bank, (now the behemoth HSBC) coughed up nearly USD$600mm for their part of not alerting autorities to the potential wrong-doing, whichh court documents alledge, they were well aware. But most of the losses were not "embezzlement" or "theft", per se, as the newspapers and Japanese Corporates would have readers believe, but outand-out ineptitude and shitty trading, for which is no crime, excepting one's sensibilities of the good, the bad, the random and the ugly. His guilty plea may reflect that Armostrong the man met Armstrong the fraudster. Or it may reflect Armstrong's understanding that having spent six years in jail, an admission of guilt might allow him to squeeze a few years of freedom in his (no pun intended) "Golden Years". For investors, the only the protection they can afford themselves is doing appropriate due diligence and being highly skeptical of anything that purports to be "too good to be true", or turn base metals or paper into errrrr gold.





How accurate was the Princeton Economic Model
By _______________________________________________

The placement of the Princeton Economic Model cycles are my own and do not necessarily reflect the views of the source. The chart below also shows a 12.9 year cycle in equities or one fourth the 51.6 year Princeton Economic cycle. I have highlighted some of the the most accurate dates, but most of the dates yield market turns within 30-90 days.



Next Princeton Economic Model Cycle Forecast I have used this model to predict a possible path of the SPX into the 2012 period, using existing geometry to pick support levels.


October 2000


The Woes of Martin Armstrong
By Nina Mehta ____________________________________________________________________________

The feds say the former offshore hedge fund manager scammed investors out of $1 billion. But the imprisoned Armstrong says he’s only guilty of knowing the whereabouts of too many financial skeletons. Martin Armstrong, former chairman of Princeton Economics International Ltd., and now prisoner #12518-050 at the Metropolitan Correctional Center in lower Manhattan, arrives for his interview in the eleventh-floor visitor’s room carrying a paper manuscript box marked EVIDENCE. The room is a low-rent affair with a row of barred windows, stacks of cheap plastic chairs, and a chunky metal-encased camera that stares down at us from its perch high in a corner. Armstrong’s fingernails are long, and there’s an air of sour indifference about him. After a quick handshake and chat with his court-appointed criminal-defense lawyer, Armstrong faces his guest, the small tape recorder clicks on and the interview begins. To federal authorities, Armstrong is a mega-swindler, a Ponzi scheme operator who bilked Japanese investors out of $1 billion. According to documents filed in federal court last year, Armstrong sold $3 billion in promissory “Princeton Notes” to Japanese corporates, invested the proceeds in risky currency and commodities transactions, racked up huge losses and then concealed the losses from investors. He was indicted last September on criminal securities fraud by the U.S. Attorney for the Southern District of New York, and released on a $5 million bond. He has been accused not of theft, but of misleading clients about financial losses and using new funds to mask those losses. In January, when he failed to hand over corporate files and assets to the court-appointed receiver for his companies, he was charged with civil contempt and incarcerated in the high-rise prison a few blocks from the World Financial Center. He and his two offshore companies, Princeton Economics International and Princeton Global Management Ltd., were also slapped with civil suits filed by the Securities and Exchange Commission and the Commodity Futures Trading Commission. Armstrong, however, believes he’s an innocent man who has been silenced because he knows too much. He sheds his nonchalance as the interview proceeds, picking up intensity; by the end, he’s calmly skywriting accusations about the motives of those involved in the case. After nine months in prison, he remains staunchly uncooperative and, in his view, uncowed. “They think that by putting me in here they’ll get me to plead guilty and cut some sort of deal, so it makes it easy for everybody,” he says. “Bullshit. I’m not going to do it.” “This is not an unusual situation,” adds Martin Siegel, his attorney, pointing to the federal government’s willingness in the Wen Ho Lee nuclear-secrets debacle to build a legal case on


speculation and rickety evidence. “It’s not as rare as people think it is. It’s standard operating procedure.” Chain of Events Armstrong says he knows how the river gods of finance operate. He knows about Republic Bank and Warren Buffett conspiring to manipulate the silver market in September 1997. He knows the names of the vultures who have attacked third-world currencies. And, from his ringside seat in the capital markets, he has witnessed the impotence of U.S. regulators to do much of anything about this grim circus. “Things got out of hand,” he says of the Asian crisis that started in 1997 and matured over the next two years. “That’s part of the reason why, once this began with me, all of a sudden Tiger Management starts closing down and everybody’s running for the hills— because of what could possibly come out of the case.” Armstrong also believes he’s being silenced because he knows too much about the backroom dealings and dissolute ways of Republic National Bank, which merged with HSBC Holdings, the British banking conglomerate, at the close of last year. Republic New York Securities Corp., a Republic subsidiary, acted as the custodian of Armstrong’s brokerage accounts. When Armstrong was arrested last fall, the news nearly scuppered the HSBC-Republic merger. Republic’s share price was punched down $10, and Edmond Safra, the bank’s billionaire founder and one of the world’s richest men, was forced to personally trim his takings from the merger by $450 million in order to save the deal. In late November, about a month after Armstrong declared he would subpoena documents and tapes of specific phone lines from Republic to buttress his defense against securities fraud, Safra was killed in strange circumstances in his home in Monaco. Armstrong, however, does not think Safra was offed because of his case. He brings up Russian money-laundering and what he describes as a coup to remove Yeltsin from office. According to Congressional testimony by a Republic deputy general counsel, Republic was the bank that tattled on the Bank of New York’s involvement in Russian money-laundering in 1998. But Armstrong thinks Republic was playing both sides of the law. “Republic instigated the Bank of New York deal,” he says. “That particular money-laundering deal was given to the Bank of New York, and that particular deal led directly to the Kremlin, which caused Yeltsin to resign.” How does all this connect with Armstrong? “I would have been, through this civil case and the criminal case, the first person ever to get Safra on the stand,” he asserts. “I don’t think he was killed specifically for anything particular in this case. But Safra had a reputation for being involved in a lot of money-laundering—for CIA stuff, for Iran-Contra...If I got him on the stand, some of this might have come out.” The Safra connection now qualifies as spilt milk. But Armstrong saves his strongest criticism for Republic Bank. Republic, he says, was worried about losing its banking license in Japan. The Financial Supervisory Authority, Japan’s regulator, had begun cracking down on so-called tobashi deals. Throughout the 1990s, Japanese pension fund managers and corporates were underwater on their investment performance as the Nikkei fell. But according to Japanese accounting rules, the losses didn’t have to be shown until realized. Instead of simply taking their lumps, Japanese managers scrambled after products they could swap for their crippled portfolios. Credit Suisse First Boston and a dozen other Wall Street firms answered their cries with complicated fixed-income instruments that carried short-term embedded options—instruments that were deemed acceptable

at the time but that eventually led the FSA to accuse CSFB of illegal activities and yank its licence to do business in Japan. Cresvale International, a Hong Kong-based brokerage subsidiary of PEI (and the entity through which the Princeton Notes were sold), was among the firms doing these tobashi deals in Tokyo. The funds for Armstrong’s Japanese note-holders were supposed to be held in segregated accounts at Republic New York Securities. But federal authorities believe that when Armstrong started running into trouble, he dumped everything into one pool in order to conceal losses. According to documents, this was by William Rogers, head of the futures unit at the Republic broker-dealer, who oversaw Armstrong’s accounts, at his client’s behest. For his part, Armstrong says that Republic collapsed the accounts, perhaps to confuse or mislead Japanese regulators clamping down on activity it no longer wanted to tolerate. The Princeton-Cresvale scandal came to light when a Japanese regulator noticed that more than 200 run-of-the-mill net-asset-value letters sent to Cresvale clients had been signed by Rogers, rather than a low-level employee. Republic Bank conducted an internal investigation, discovered that money was being moved around between accounts in a giant shell game, suspended Rogers and James Sweeney, president and CEO of the broker-dealer, and alerted the Feds. Documents filed in court last year by the SEC indicated that Armstrong had “caused” the misleading NAV letters to be written. Since then, it appears Republic has cooperated with the authorities and has not been charged with any wrongdoing. Rogers and Sweeney have also not been indicted or charged with any securitieslaw violations. (Republic declined to be interviewed for this article.) Armstrong denies that he cheated clients and ordered the Princeton accounts to be collapsed. Indeed, he lays the blame for all problems on the Republic broker-dealer. Its back office, he says, was a disaster—and the bank’s internal memos will confirm that Republic knew about sundry accounting indelicacies and back-office gridlocks. HSBC now has a gag order on him and is trying to block access to memos and tapes of conversations he’s seeking through the discovery process. At least one group of Japanese corporates is suing the bank for fraud. “[Republic’s] argument is that it would be unfair that any discovery I had from the criminal case would be turned over to the Japanese to help them in their suits against Republic,” claims Armstrong. Not surprisingly, a number of questions remain. Republic argues that Armstrong pulled the strings for the entire securities scam. But why didn’t anyone at Republic worry that 90 percent of all the business in the futures division was generated by Armstrong’s Princeton companies, as has been reported in press accounts? Under what rock was Republic’s due-diligence task force sleeping when the Princeton accounts were being messed up? Armstrong’s story is equally hard to credit. How could Armstrong not notice that hundreds of millions of dollars weren’t where he thought they were? And if he lost tens or hundreds of millions of dollars by betting wrong on yen-U.S. dollar, as is speculated, is it possible he wasn’t such a great trader after all? Legal Eagle Answers to these questions are not likely to surface until the criminal case against Armstrong comes to trial, which may not be until this time next year, says Armstrong’s lawyer. Meanwhile, the prisoner from Maple Shade, N.J., spends his free time in the law library at the Manhattan


Correctional Center, grinding out legal briefs and letters. He jokes that Siegel, his lawyer, expects him to pass the bar exam. The former PEI chief has gone through about half a dozen attorneys over the last 13 months. Last September, he wired $1.3 million in advance retainer fees to three law firms from his Princeton companies hours before a court-mandated asset freeze. Some of the attorneys abandoned Armstrong’s defense after Alan Cohen, the court-appointed receiver from the New York law office of O’Melveny & Myers, required them to surrender the fees. Other lawyers were fired by Armstrong. Although he now has a court-appointed attorney for his criminal case and another one for his contempt charge, he is representing himself in some of the civil suits being brought against him—and in any event appears to be calling the shots in his legal defenses. Yet for all the current focus on his criminal defense case, much of Armstrong’s time this year has been spent fighting his civil contempt charge. He now belittles this as a “side show,” but over the months he has fired off a round of legal salvos damning the receiver and Judge Richard Owen, the federal judge for the Southern District of New York who is presiding over his civil cases, for various abuses of law and violations of his civil rights. These documents won’t win plaudits from the ABA for their display of dispassionate legalese. They’re forceful screeds, written in seeming haste with a ragout of typos and mistakes, but with full citations from case law and the statute books. Armstrong doesn’t enumerate his complaints in calm, measured paragraphs as much as hurl poison darts at all involved—from his former lawyers, some of whom he dismisses as spineless, to the judge, who he suggests should recuse himself from the case because of unlawful ex parte discussions with the receiver, one of his former law clerks. Ego Games In a series of high-octane motions, Armstrong argues that the receiver is a shill for the New York District Attorney, and that he has operated in bad faith by embellishing the record, misleading the court and manufacturing evidence. He upbraids the receiver and the judge for a string of improprieties, writing that the civil contempt charge “has been brought for punitive purposes with malice and indicitiveness of forethought with the intent to disrupt my defense, prejudice my case and deliver to the US Attorney a tactical advantage in my criminal prosecution.” “How the Receiver could not find a 6 foot suit of armor or marble antiquities prominently displayed in my former office is simply inexcusable particularly when he is demanding my incarceration for failing to produce these very items.” Martin Armstrong He maintains that Cohen has an “Alter-Ego” reason for wanting to be receiver. He believes Cohen has devalued key parts of the Princeton companies and inflated the value of missing assets in an effort to buttress the government’s case “that this [whole operation] is somehow a fraud that had no means of meeting its obligations.” Cohen’s reason, according to Armstrong: he wants to bill more hours. The receiver is not interested in running the Princeton businesses but in milking “his new found money-machine behind the cloak of your Honor,” writes Armstrong. In a related vein, he contends that Cohen has not done his duty to properly manage the Princeton companies under his receivership. For several weeks last fall, says Armstrong, the receiver didn’t pay the staff of Princeton Economic Institute, an independent research organization with various ties to Armstrong (which the court eventually declared part of his corporate assets), so most of the employees left. He adds that the receiver didn’t cooperate with banks, accept credit card orders

from prospective customers, or respond to a group of clients that wanted to purchase the Institute—all told, that Cohen’s handling of business matters has been the work of a layabout caretaker. Where’s Livia? Perhaps a few odd twists to this case are to be expected. Like, for instance, the corporate goods on the receiver’s Most Wanted list. The items still at large include 102 gold bars (worth $1 million), 699 gold bullion coins, $13 million worth of rare antique coins, a $750,000 black bust of Julius Caesar sculpted in the first century A.D., a bust of Emperor Commodus, a bust of Empress Livia (the wife of Emperor Augustus), seven cuneiform tablets and other rarities. In 1997 and 1998, says one coin dealer deposed by the receiver, Armstrong was among the world’s largest buyers of rare coins minted in ancient Greece and Rome; his purchases influenced international coin prices. Armstrong’s criticisms of Cohen are also fluted with a droll, almost slapstick disdain. The receiver mistook a calendar shaped like a silver bar for silver bullion and a gold-plated paperweight for the real thing, he says. These were not “corporate assets” and were not “hidden” in his West Windsor, N.J., office. He tut-tuts the receiver for not immediately locating certain antiquities. “How the Receiver could not find a 6 foot suit of armor or marble antiquities prominently displayed in my former office is simply inexcusable particularly when he is demanding my incarceration for failing to produce these very items,” he moans. In light of such lapses, he wonders, “how can the court accept [Cohen’s] declaration claiming he found no coins?” After armstrong predicted the July 20, 1998, high in the u.s. equities market, the cia called, wanting to know how the institute’s proprietary models worked. Armstrong further charges the receiver with abusing his court-appointed powers by acting as his prosecutor. Cohen, he says, is helping the D.A. make his case by not forcing those who cooperate with his office to fork over “tainted” corporate assets. He points out that Tina Mustra, his former executive assistant and one-time fiance (who continues to work at the Institute), still has a BMW, an ancient coin necklace and other gewgaws that came from the same pool of corporate assets the receiver has since seized. There’s a quid pro quo at work here, he says—her deposition and help in exchange for her being allowed to hang on to her goodies. He claims this is extortion, then reminds the judge that extortion by a representative of the court is punishable by a fine and up to three years imprisonment. The receiver, he adds, also engaged in other acts of bribery. Armstrong has charged Judge Owen with a number of legal no-no’s as well. He writes that the judge has displayed animosity toward him, that the judge is irreparably “pro-government,” that he has no jurisdictional leg to stand on since this case involves offshore entities, and that his behavior has possibly contaminated “the independence of the judiciary and as such constitutes prejudicial conduct.” In June, Armstrong filed an official complaint against the judge for misconduct, alleging that he had engaged in extra-judicial discussions with Cohen about the Princeton companies and that a Special Master of the Court should be appointed to untangle this case’s hoary mess of truth and lies. Bad Facts Perhaps one of the more indisputable facts in this legal saga is that Armstrong is not a temperate defendent. He has not cooperated with authorities, and his allegations have kept the receiver’s

office and others on their toes. When questioned about some of Armstrong’s claims, for instance, Tancred Sciavoni, the receiver’s counsel at O’Melveny & Myers, immediately e-mails dozens of legal documents and depositions disputing item after item in the lavish wreath of criticism Armstrong has tacked on the receiver’s door. In fact, Armstrong’s facts don’t quite fit. The suit of armor and other busts from his office were not on the laundry list of missing goods that ultimately led to his incarceration for civil contempt. Corporate assets were frozen by court order, never by the receiver’s whim. Armstrong’s windy explanations of the whereabouts of certain assets were found by the judge to be a legal nullity. (A deposition of Armstrong’s chauffeur, for instance, negated his claim that he gave the 102 nowmissing gold bars to Akira Setogawa, the head of Cresvale’s Tokyo office, in a New Jersey parking lot in June 1998.) In addition, the group of investors that inquired about purchasing Princeton Economics Institute was not taken seriously since it was represented by a long-term friend of Armstrong’s who refused to name the investors. Receipts, affadavits, wire-transfer letters and legal documents buttress the receiver’s findings and fly in the face of Armstrong’s statements about the disposition of assets and the course of events. At the same time, it’s worth noting that Armstrong’s cycles-based models have had some spectacular successes. He may now be mocked in the media as a peacocky market predictor who guessed wrong about his own life’s work in a big way, but he called the high of the Japanese Nikkei in 1989 months ahead of time—the Nikkei peaked the last week of December as he said it would, then crashed like a tsunami, casting off 40 percent of its value in a matter of weeks. (This was the reason for his close ties to Japan’s Ministry of Finance and why Japanese corporates clamored to attend his conferences and buy his Princeton Notes.) More recently, and again months ahead of time, Armstrong predicted the July 20, 1998, high in the U.S. equities market— to the day. After that morsel of prognostication, claims one source, the CIA called Princeton, wanting to know how the Institute’s proprietary models worked. Needless to say, Armstrong rebuffed them. A prison attendant waiting in the vestibule area raps on the window. Time is up. As Armstrong leaves the visitor’s room at the end of the interview, he doubles back to ask a few questions about the documents sent by the receiver’s office. Three days later, a letter arrives from jail. There are additional conspiracy charges and new information about the markets being rigged. “You will no doubt try to portray me as some greedy thief who is secreting assets,” he writes. “I am 50 years old and they threaten me with 25 yrs. I wouldn’t live to enjoy any assets. If I had them, I would turn them over because I could earn more than enough outside to hire a 1st class defense. That they will never permit.” Switching tacks, he continues: “I am the guy who knows all the dirty little secrets and how the SEC and CFTC will never go after the big boys because it will destroy much of Wall Street if the truth ever gets out. They want the average person to believe the markets are fair and safe because they regulate them.” Whatever the elastic truth of this case, Armstrong will eventually have to decide how fair and safe the U.S. legal system is. In the interim, he concludes, “They play a nice shell game. They keep your eye on assets while the real story goes untold.”



Martin Armstrong’s Cycles
By Warren Pollock [March 19, 2006] Although he has been much defamed of late, Martin Armstrong of Princeton Economic Institute did no doubt stumble upon a unique cycle in financial market analysis. He began with the simple procedure of adding up all the financial panics between 1683 and 1907, and dividing the 224 intervening years by the number of panics that he found, 26 of them to be precise. The result was an average duration between panics of approximately 8.6 years. Of note, 8.6 years also equals 3,141 days, or the mathematical symbol of “pi” times 1,000. Armstrong went on to do a great deal of further research into this preliminary "cycle," noting that six individual 8.6 year cycles added together came to 51.6 years – or something akin to the famous Kondratieff cycle. He also noted that many of the 8.6 year periods represented shifts in public sentiment away from government control of the economy, and then subsequently back toward it when a “bust” cycle became overwhelming. He noted that “politics seemed to ebb and flow in harmony with the business cycle.” Using the crash of 1929 (1929.75) as his starting point, Armstrong was also amazed to find that his general 8.6 year rhythm worked in a remarkably prescient manner going forward in time – often almost to the day. We list these cycle dates on the table below, each cycle lasting almost exactly 8.6 years, and have added our own Elliott Wave labeling for those so inclined. 1929.75: US equity market crash – end to Wave I. 1938.35: End of US bear market – end to Wave II, beginning of 1 of III. 1946.95: US equity market high – end to Wave 1 of III. 1955.55: US equity market breaks the 1929 high – end to Wave 2 of III, beginning of 3 of III. 1964:15: US equity market high – end to Wave 3 of III. 1972.75: US equity market high – end to Wave 5 of III, beginning of protracted Wave IV and inflationary spiral. 1981.35: Last series of Fed tightening begin to squelch inflation, beginning the final descent of Wave IV into August 1982. 1989.95: First global market to complete its Wave V topped on this day: Japan. End of Wave 1 of V elsewhere. 1998.55: July 20, 1999 marked a significant high in both European and US equities, preceding the August 1998 Russian debt crisis – the end of Wave 3 of V. 2007.15: Next 8.6 year cycle date. Final high or a major low? Armstrong’s work further divided his 8.6 year cycle into shorter, less significant cycle dates along the way of 4.3 years (a half-cycle), 2.15 years (a quarter cycle), and 8.6 months (or 1/6 of the total 51.6 months that comprise 8.6 years). These lesser cycle dates have seldom been as easy to read or anticipate, but they have often ushered in interesting shifts in global capital flows. For example, starting from the US equity market high of 1972.75: 1974.9: or 2.15 years later was the US equity market low. 1977.05: or 4.3 years later was a major turn back toward inflation. 1979.2: or another 2.15 years later was the beginning of a runaway gold and silver market. 1983.5: or 2.15 years after the major 1981.35 cycle date, the DJIA vaulted above 1,000 for the first time.

1985.65: or 4.3 years after the 1981.35 cycle date, was the high in the US dollar to the day, followed shortly thereafter by the Plaza Accord. 1987.8: or another 2.15 years later, was the crash of 1987, to the day. 1991.1: 2.15 years after the major 1989.95 cycle date, was the Gulf War low, to the day. 1994.25: 4.3 years after the major 1989.95 cycle date, was the exact day when the Fed launched a preemptive rate hike, sending equities and bonds down together, and marked the beginning of Latin American and Southeast Asian problems. 1996.4: another 2.15 years later, deflationary fears dominated, and global rate cutting fever (particularly in Europe) began. So it is that we note that 8.6 months after the July 20, 1998 equity high was April 8, 1999 (one day shy of a significant high in the Internet DOT Index that led to over a 30 percent correction); and December 26-27 is now another 8.6 months later. September 13, 2000 will be the next 8.6 month cycle date and also the 2.15 year cycle date. Could an equity market high now lead to a significant low then? We certainly think that this is entirely possible, if not probable. Consider the impact of the calendar. January 1, 2000 will not only mark the beginning of a new millenium, but more immediately, it will mark the beginning of a new tax year. For those sitting with large gains, it will offer a more natural time to cash out some of these gains rather than doing so right now. Why pay Uncle Sam in three months’ time if you can pay him 15 months hence? A bevy of recent Internet IPOs will also see their insider “lockup” periods expire during the forthcoming few months. It should be a natural time to say “Thank you, PaineWebber” and put money in the bank. So overall, Martin Armstrong may have been sloppy in his back-office controls, and perhaps even guilty of the charges that stand against him as a money manager (we will see what the courts decide), but in the study of the fractal nature that our calendar seems to naturally divide itself, we think that he was most definitely a gifted visionary of some sort. Keep both December 26/27 and September 13, 2000 firmly in mind as you make investment decisions into the new year. The midway point between those two dates (or 4.3 months from today), May 5, 2000 could easily mark a point of realization by the masses that stocks do not always “grow to the moon.” In between now and then, a step and a stumble lower could easily transpire.



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