Monday, April 6, 2009

New from Martin Armstrong

Destroying Capital Formation - Economic Suicide

Destroying Capital Formation - Economic Suicide
by Martin Armstrong
(PDF - Right click to download, left click to view in browser)

Martin seems to be projecting gold to go to $2,500 around October or November, 2009. But this would be a "normal market development" he says. "Not the end of the world". If we have a more severe turn of confidence, he sees gold hitting $5,000 in that rough time frame. And depending on what happens at the end of April, he says he could see this spike in gold happening as early as September.

Slightly disappointing, Martin seems to celebrate the end of the gold standard and embrace the idea of printing prosperity. Although he does not seem to like borrowing prosperity. He also confuses asset deflation and monetary deflation by confusing asset destruction and monetary destruction. And lastly, he seems to favor floating exchange rates (which should be fine with Freegold in the mix, but disastrous otherwise) and floating interest rates (another post-gold standard invention).

So I say, Marty, keep up the cyclical work and leave the monetary policy to Another.

Here are a couple snips that mention April 19th:

Click images to enlarge



Did anyone watch the new season premier of The Tudors last night? Looks like an interesting season. History certainly does repeat!



Mark said...

Nope, don't get Showtime but heard it (Tudors) was very good. I'll check to see if it is available On Demand if you think it is worth it. I found MA's essay to be a little bizarre this time. I agree that this Government will go overboard in chasing down tax fraud, that is a given, but to advocate offshore tax havens as an engine of economic growth would need to be proven to me. He is absolutely right on page 2 where he says the Government is now printing money, so they don't need to shake us down for it anymore. Brilliant! I wish someone would say that on CN(BS)C.
word ver = redistu (too close to redistribute!)

Anonymous said...


Thanks for sharing Armstrong's latest essay. I'm not sure that I agree with his prediction of Dow Jones 4200 by July. Several of of my subscribed investment letters state that we are currently in a bear market rally that will take us to 1044 on SPX and 10,000 on the Dow Jones. This rally could last into late summer or fall.

FOFOA said...

Hi Mark,

Well we switch between HBO and Showtime like most people switch channels. Big Love just ended so we called the cable company and switched to Showtime for Tudors. One of the benefits of doing this is we usually get a 3 month discount, or some other special for new subscribers.

On Armstrong, I agree and disagree with him in slightly different ways than you. I actually agree with him on the issue of tax havens. Remember, just because someone has money, doesn't mean they stole it. Not all rich people are evil banksters. And I don't think the printing prosperity idea is a good idea. I have read others that propose this approach. But it has many problems. It is inflationary for one. But the tradeoff is inflation instead of taxes. I just don't see it as a sustainable system. I read an entire website devoted to this system and I was uninspired. I still think that a finite counterweight that can be used as a STORE of wealth is necessary. And then, if a country wants to embark on "printing prosperity" it can. At least I can store my wealth in something else.


FOFOA said...

Hello Anonymous,

As Another said, time will reveal all things. I would be surprised if the rally takes us that high, but it is certainly possible. For a newsletter writer, (generally speaking), when your livelihood depends on the relative success of your predictions, it is very dangerous to predict trend changes in the short term. If you believe a change in the trend is coming, it is much safer to predict it far enough out that you will have several more letters written between now and then to adjust your prescription along the way. Over the long run, this strategy will work to your benefit, even if you suspect an imminent danger. If something happens too soon, then it is a Black Swan. If it happens too late, well then you were early.

On the other hand, I will have no monetary loss if I am wrong. Neither will Martin Armstrong. And I have to agree with him that we are due for a change very soon. As I pointed out in Connecting the Dots, from August '07 to October '08, we witnessed 5 major shifts. And with each one, both frequency and amplitude increased. The first was 7 months, the second was 4 months, the third was 2 months, and the last one was 1 month, ending around October 19th. Since then we have had a bumpy ride but no big shocks. Instead, we have seen a gradual build-up of confidence. April 19th, being 6 months after the last shift, still seems to fit.

I expect something subtle but profound, but I could be wrong about that.


FOFOA said...

A potential "Black Swan"?

Mark said...

I actually agree with him on the issue of tax havens. Remember, just because someone has money, doesn't mean they stole it. Not all rich people are evil banksters.
Undoubtedly, but I guess I am under the misconception that successfully sheltered money cannot "go to work" in this country under the current scheme. To appear with off the books capital is to supplant the Fed as producer of money from thin air. Since they frown on that, doesn't that tax haven become instead a giant mattress? I am just trying to see how MA equates that as a common good. Certainly wealthy people who still believe in America are a common good (here comes the Rand - I'll stop here) :-)

Martijn said...

With all the current talk about the economy picking up again I have another interesting link. Personally I do not believe that we are seeing the recovery right now, but still.

This link is from a former GE manager who studied the stock market after his retirement and came up with an interesting correlation. The site in itself looks rather cheesy, but the message is quite interesting indeed.

The bottom line of it is that the economy is mostly driven by the people in it (I must admit that does not sound illogical to me) and of those people he argues that especially the 49 year old have the most influence since they are at the top of their spending.

According to this "theory" the real economic downturn in the US should only begin after 2010-2012, and it will go down fairly steep.

This is quite compatible with the current slump, since todays problem is mainly a technical/systemic one.

Anyway, check out the website, and perhaps buy the book (it's very cheap and thin, but the message is put across pretty strong). There is also a paper (in pdf) on the site somewhere that explains the basic idea.

Here's the link:

FOFOA said...

This is one way our economy is fragile enough for a major turning point to happen at almost any time. An excerpt from The Privateer:

The MetLife Study:

The MetLife (a large US insurance company) study found that 50 percent of Americans said they have a one-month cushion before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing still is that 28 percent said they could not make ends meet for longer than two weeks without their jobs and 29 percent of those making $US 100,000 or more a year said they would have trouble paying their bills after more than a month of unemployment.

The Tiny Margin Holding Back Social Chaos:

The numbers above mean that half of the American nation is between two weeks and one month away from a full-scale individual economic catastrophe if they lose their jobs. Effectively, they have no margin of personal financial safety at all! The numbers also mean that on a national basis, the US is only one month away from a huge national crisis should unemployment suddenly soar higher. This is what makes the present crisis so fundamentally different economically from the one which took place in the 1930s. When that depression hit, there was no US welfare state. Most Americans had some personal savings to tide them over before they hit the wall. Not today. This is a pre-set recipe for huge social chaos.

And Now - Americans Are Trying To SAVE:

As recently as August 2008, the US savings rate stood at 0.8 percent. Not long before that, it was negative! Most Americans, having seen Billions and TRILLIONS in bailouts poured over in the huge US banking and financial sector, realise that none of this money has arrived where they are. They have taken matters into their own hands by cutting their purchases right back to necessities as the US retail data increasingly shows. They are also trying to save whatever money is left over.

From Here On - The US Is On A Rolling One-Month Countdown:

Based upon the MetLife nationwide study, the US economy has a forward time horizon of only one month. When a day has passed without a market, financial or US Treasury auction breakdown, then add that day so that this forward horizon of one month is maintained. But should the US stock market or the financial markets in the US suffer a breakdown, then cut that forward time horizon back to two weeks. And should the US Treasury fail in selling its whole allocation of new debt paper in any US Treasury auction over the time ahead, cut the forward time horizon back to one week. At that point, the breakdown is very close.

The Standard Features Of All Financial Breakdowns:

First all markets - stock markets, bond markets, currency markets and the rest - are closed down. Nobody is allowed to send any money outside the country. Then comes wage and price controls with rationing of all critical items. Banks are only allowed to issue, perhaps, $US 100 per day per customer. It is coming.

[Excerpt slightly abridged and emphasis added]

alek_a said...

You must read this

The dark side of Dubai

Tells the story of a fairy-tale gone very very sour. The land far, far away is Dubai. Or is it that far?

(verification word: flogings)

FOFOA said...


You say, The land far, far away is Dubai. Or is it that far?

This article might answer your question. It is 10 miles from me.

Unlike disgusting Wall Street stories, I find these stories incredibly sad. As The Privateer often says,

Please consider first a point which has been made by The Privateer on many occasions since the global financial crisis hit a bit more than two years ago. What the world faces today is not the loss of REAL WEALTH. There has been no actual physical destruction at all, what has been destroyed is the vital connection between the medium of exchange - the money - and the REAL economy.

Yet these stories represent real scars on the physical landscape. I am hopeful that Freegold will "bail out" some non-bank entities (in places other than New York City and London) in the near future.


Martijn said...


Indeed no material wealth has been lost indeed.
The future outlook however became a lot less bright for many, which could be debated as being wealth also.
But is a good point noticing that no material damage has been done.

FOFOA said...


Indeed it is. So far the loss has been in perceived future security. And that is very powerful. I finally did my taxes last night, as tax day draws near. I will write more about that later.


This is a very interesting article. I don't know anything about this guy, but it sure seems like he has been reading FOFOA. If not, we have both been reading a lot of the same things for a while. His fascination with cycles, fractals and Martin Armstrong are strikingly similar to mine.

One thing I will say is that this article makes clear to me the weakness of Technical Analysis at a time like this. TA fails to predict phase transitions in all cases. And as I have said many times, now is different than the 70's for this very reason. We are now living through the end of an era.


FOFOA said...

New release from LEAP2020.

This is from December 16th, but it is a peek inside their subscriber section. And I think they have a good reason for releasing it right now, as a reminder that Jim Cramer is wrong. The worst is not over.

I actually think that LEAP2020 suffers from a Keynesian bias, and a little too much of a Eurocentric perspective. (However I do agree that Europe has a distinct advantage because of the structure of the Euro). For this reason, I don't fully agree with all of their prescriptions. But their practical outlook is pretty much dead on in my opinion. As with all prognosticators that I like, I often agree a great deal with their hindsight and less so with their foresight. But that is almost a universal truth, so it is nothing specifically against LEAP2020.


The Mad Scientist said...

Those comments about demographics and economics sound a lot like those of Harry S Dent.
As recently as 2004 Harry predicted DOW 30,000 and Nasdaq 10,000. He then changed his mind when stocks started going down and now he has a rather complex timeline with a huge move up with commodities going beserk and then a huge bust.
Kind of weird how he gets all that from demographics.

FOFOA said...

Adam Lambert is the frontrunner by a mile on American Idol. His performance of Mad World last night was amazing. And a very appropriate song for the world right now.

You can watch the performance here. Click full screen and turn up the volume.


Martijn said...

@Mad scientist

I haven't read Dent, so I cannot compare the two. However, the fact that someone (Dent) makes inaccurate predictions based on some concept (demographics) does not make that concept useless in itself. I suppose you as a scientist are aware of that.

I have e.g. heard many people make inaccurate predictions based on the concept of iflation. I would however not argue that inflation is not important.

And for demographics: in the end the economy is brought about by the people in it, so you will need a rather strong argument for dismissing its relevance.

The Mad Scientist said...

Martijn, I did not mean to argue that because Dent makes those predictions the model is useless.
However Dent is making identical predictions for the 2011-2012 period, based on the same population demographic the 49 year oil group.
In fact it was funny, I was with my wife in a bookstore and we saw both his books "The great boom ahead" and "The great bust ahead" side by side.

Although the interpretation of demographics is more complex than a coin toss I would argue that it is relatively simple in concept hence it is unlikely that looking at the same data you could arrive at polar opposite conclusions. Probably makes sense considering both Dent and your guy see the same thing. Just wanted to let you know I had been following Dent since 2004 out of curiosity and he was wrong 60-80% of time.

FOFOA said...

I haven't studied this, but it seems to me that demographics is important, but only one piece of the puzzle. Psychological changes can also be demographic-specific, but they are just as important. I think the cyclical flow is very complex.

Martijn said...

@Mad & FOFOA

We seem to agree that demographics is indeed an important factor. As FOFOA (and Dan Arnold) say it is only one piece of the puzzle indeed.

Arnold (the great bust ahead) argues that over the long term the group of 49 year olds "proves" to be leading in economic developments, however, these developments can run of course for relatively small (3 year) periods as a result of e.g. war.

Currently we are not facing a demographic crisis, but rather a systemic one. The monetary world is an abstract one that is coupled to the real world, and right now we are witnessing some off those couplings coming off. This one might get very big indeed, as it might collapse an entire system, should we survive demographics might take lead again.

The Mad Scientist said...

The end of the world comes infrequently.

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