Copyright Martin Armstrong All Rights Reserved August 29th, 2012

The ECM & The Future

odays blog posting warning that we may see much more serious events happen more rapidly has sparked a number of questions about the turning points and what bottomed in 2011.45. Those unfamiliar with the Economic Confidence Model may assume that every turning point must produce some magical low on a precise day. Yes, that has been the case regarding major tops. However, that has not been traditionally the case at the major

lows. These events tend to produce the shift in the investment trend rather than a precise low for a particular market. The 2011.45 turning point was the start of a shift in the way capital invested. It was the shift from the PUBLIC flight to quality that marked the 2007-2011 period with the tremendous shift into government bonds. Everyone was calling for the Dow to collapse. It shifted and began to rally. Barrons got that one right explaining that our forecast called for a shift back to the stock market in the classic PUBLIC to PRIVATE investment sense. http://online.barrons.com/article/SB50001424053111904548404576397780966386382.html In the 1989.95 Wave that began in 1985.65, the low was the formation of the G5 that summer. No specific market formed the precise bottom of significance then as was the case at 2011.45. This is the NORM, not the exception. It marks a global capital flow shift that more often signals a change in global trends. We took the back page of the Economist for 3 weeks in July 1985 to announce that shift in trend and the end of the massive deflation that took place between 1981.35 and 1985.65. What event was marked by 1981.35? The precise high that month in the interest rates set by the Federal Reserve. It is true that the end of the 1989.95 wave was 1994.25 and that did produce the precise day of the low in the S&P 500. That turning point, while it did produce the precise day of the low, which was unusual, it too also marked the shift in capital flows from SE Asia back into the USA & Europe. These bottoms tend to market the shift in major global trends rather than a specific market event. The high of that wave of July 20th, 1998, that marked the precise day of the high in the US share market, the collapse of Russia and LTCM debacle in September. The capital flows shifted out of Russia as the Euro began in 1998.

What really must be understood is how can such a model produce so many precise turns in various markets around the world? I am hated in NYC because they assume I am just too influential globally. They attribute the accuracy of forecasts to influence rather than perhaps to some discovery that is equivalent to the earth just might not be flat. The mid-point on the declining wave from 2007.15 into 2011.45 was April 16th, 2010. What event took place that day? It was the 16th of April 2010 when the whole Sovereign Debt Crisis erupted onto the headlines around the world. Fury erupted in Greece over proposed IMF intervention where the Greek government admitted that it would need help from the International Monetary Fund. This realization played out as a proposed bailout up to 45bn. http://www.guardian.co.uk/business/2010/may/05/greece-debt-crisis-timeline

Christopher Cox, 28th Chairman of the SEC

The Economic Confidence Model has always been a global frequency. There are people who are just begging to try to prove me wrong personally on something in an effort to discredit the model. They do not want the world to know there is a quantitate aspect to the Business Cycle. Why? Gee they can no longer manipulate government if it is a Business Cycle and not sheer force. One of the more disturbing roles of recent years has been that of Christopher Cox. Mr. Cox became the 28th chairman of the Securities & Exchange Commission (SEC) on August 3, 2005. His profile shows virtually no real world private experience, but rather just another lawyer who sought the run government. His public rsum states he worked in government for 17 years and was in the House of Representatives serving as the Majority Leader. Only between 1978 and 1986 did he work as a lawyer in corporate finance and venture capital at the law firm of Latham & Watkins. Other than this period, he spent his life in government. He possessed no working background in the industry as a broker or trader. On October 23, 2008, Mr. Cox testified before the House Oversight Committee. The topic of whether or not there could be a computer model created to forecast the economy and the markets. Given that every firm on Wall Street has proprietary models and there is a whole industry of analysis that covers everything from technical and pattern recognition to cyclical analysis, it is strange indeed to have the head of the SEC bluntly say the government should have no models and should constantly be flying by the seat of its pants. Both Mr. Cox and Alan Greenspan testified before Congress that day. Where Greenspan said such a model did not exist, Cox said we should NOT even try to build one. These responses are highly suspicious and some of the banter going on among Committee members gives the impression as a whole, there was no intention to ever create a model. But why?

Mr. Cox. With respect to modeling all of the risk in the system, I suppose at some point you run up against the problem of trying to create such a level of exactitude that you rebuild the whole world in all of its complexity. That is probably an aspiration that we ought not to have. Therefore, we have to recognize that computer modeling is going to always have its weaknesses, and we have certainly seen that in the last year. We have seen it in a lot of the risk models that people relied on. We saw it in Long-Term Capital Management. We have seen it many times over. A lot of those things required more human input. Chairman Waxman. Do you have any comment on that before we move on? Mr. Snow. Just very briefly. Chairman Waxman. Is your mic on? If you forget to look to turn on your mic, you might forget to look at your model. Mr. Snow. I share the basic thrust of your question here, which is can't we do better? Can't we find ways to do better? It seems to me, and this is retrospective, the question is leverage in the system. When loans and debt gets to be some fraction of GDP, it probably ought to send off some signals, because GDP represents the earning power, the debt represents the obligations. Congressman Cooper talked to us about future obligations that vastly--that rise at a very significant rate relevant to the GDP of the United States. That sort of thing in rough and ready terms we should be able to model and have signals go off. P122-125, L2999-30327 Alan Greenspans testimony was also highly disappointing. Mr. Issa. But should the Congress bring to bear additional resources for each of you and for other agencies so that your predictive modeling and your doomsday scenarios, and specifically for you, Chairman Greenspan, the doomsday scenario we now live with undoubtedly could have been modeled but wasn't predictively modeled by any of the agencies of government and delivered to Congress. Should we be in fact investing in that kind of modeling? In other words, micro-modeling of everybody's product and derivative products, but macro modeling of if in fact there is a hiccup of 6 percent in the California market for homes and it ripples throughout the United States, then what could or would happen? If that modeling is available today, please tell me. Otherwise tell me, do you think we should be investing in that? Mr. Greenspan. It is not available. Indeed, Congressman, earlier this year I raised the question about modeling procedures for the economy, and the econometric work that is

being done has essentially been restricted to taking the whole history and assuming that it is homogenous and therefore you can get some insight. What is very evident to me, and I think increasingly others, is that the way the economy functions in the period of expansion is really quite different from what happens on the way down. And I should think that we will find that we could model the euphoria stage, as I like to put it, and the fear stage, and they are really quite different, and I think we would find that we learn a great deal about specifically the fear stage, because we do have numbers of episodes in the past. Our major problem is that we don't have a third model which tells us which of those two are about to happen. And the reason essentially is that a financial crisis must of necessity be unanticipated, because if it is anticipated, it will be arbitraged away, and if a financial crisis by definition is a discontinuity in asset prices, then it means from 1 day to the next people were surprised. Something fundamentally different happened. I think that, and I have argued this, and I am not saying whether the government resources are relevant to this, I think the academic community could do it surely as well. And what we do have to understand is that our view of the way an economy functions is not properly modeled by what we now have.

The problem we face is the spin. If nobody will even try to create a model with sincerity, then is it not true that we will always certainly face the unexpected collapse caused perpetually by the bankers? Lets face the facts. The bankers just have NEVER FORESAW A SINGLE ECONOMIC CRISIS IN HISTORY! THEY HAVE ALWAYS JUST TURNED TO GOVERNMENT, SCARED THE HELL OUT OF THEM, AND THEN HELD OUT THEIR HANDS. The bankers sold foreign sovereign debt to Americans in small denominations and watched them all default in 1931. Over 3,000 banks failed in the 1930s. In 1937, 77 more banks failed. The number of bank failures in a single year exceeded 100 in 1982 for the first time postDepression. That peaked in 1989 reaching 534 with the S&L Crisis created by Congress. That fell to just one failure in 1997 and then rallied reaching almost 100 in 2009. Lets face the facts. They were defaulted

on by Latin America, then Mexico and they created the Orange County defaults by bad derivative strategies. Then there was their attempt to manipulate the US Treasury auctions, the S&L Crisis, the collapse in Russia and Long-term Capital Management, followed by the DOT.COM boom and bust. Then there was the 07 mortgage bubble. They have screwed up every single time! They dont ever get it right and their greed keeps them in these nave trades. In the end, they turn to government with their hand out begging to be saved ONE MORE TIME! There have been conspiracy theories that call it the Revenge of the Jews. Plots portraying the Jews as behind everything were popular in Japan. But quite frankly, the Jews might be the majority in New York controlling the big Investment Banks, the majority of prosecutors and lawyers, but they have no exclusivity of lining up for bailouts. I find it handy that a committee to save the world comes rushing in AFTER the fact. Nevertheless, there is stiff competition between the Jews and Christians in New York, but I do not see this as a plot. There are no fire detectors in our financial house. We are running the world economy by the seat of our pants. How can you argue against an independent model compared to opinion? We need at least a real smoke detector. This Committee to Save the World does not support models and that is just nuts. So this explains why there are so many desperately trying to tell people PLEASE do not listen to anything I have to say. They control Wikipedia and anyone who tries to tell the truth is immediately blocked by Wikipedia and those controlling that page are using an IP address through Switzerland so it cannot be traced in a US court of law. On Wikipedia they admit 2001: Republic pleads guilty to fraud and agrees to restitution of $606 million in connection with cheating Japanese customers by its Republic New York Securities Corporation subsidiary
http://en.wikipedia.org/wiki/Republic_New_York

Of course, Wikipedia always removes any mention of the actual plea which stated my agents
also told investors that their monies in those accounts would be separate and segregated from Republics own accounts and would not be available to Republic for its own benefit. (99-Cr-997 SDNY; 8/17/06, p20, L7-14). There

was no restitution owed because nothing was owed. The bankers had to pay that one single they took the funds. They remove any article that takes about the model, such as Time Magazine, Barrons, or countless other pieces including the New Yorker.
http://www.newyorker.com/reporting/2009/10/12/091012fa_fact_paumgarten

They need desperately to keep government blind to the truth. If government EVER followed the Economic Confidence Model, the bankers would be unable to get $700 billion bailouts. For once we just might go with the flow of the cycle instead of always fighting it that increases bailouts always to the banks from South America in the 70s, Mexico, Russia, and Real Estate. When will it ever end? Not until there is really a separation of interests in Congress People v Banks.

We are facing a real Global Meltdown that is brewing beyond. Greece was the tip of the iceberg. Governments are imploding. Japan is doubling its sales tax and its national debt will exceed $12 trillion dollar next year not far behind the USA. Spain is in really dire financial position. Capital is pouring out of the country. More than 25% of GDP in wealth has

taken flight. Once Spain goes, there goes the EU. The Spanish banking system is on the verge of systemic complete failure. So much capital has been fleeing Spain the ECB is now pouring in on average, more than 300 billion on a monthly basis to meet liquidity needs. Since the total Spanish banking system is about 3 trillion in size, the financial crisis brewing is amounting to almost 10% of total banking assets on a monthly basis. This is simply unsustainable.

Governments worldwide are in crisis. There is a great disparity between the state and local governments who cannot manufacture money at will and the sovereign national governments who can. If you think for one moment that sovereign government bonds are the flight to safety, you better stop smoking the weed. In the United States, you will see further rises in social security taxes because this is of course not a tax but a garnishment on income that goes into the same spending pot. Therefore, the so called poor who the Democrats swear they will ease their burden by getting those rich bastards once and for all, pay attention to Social Security. Since that is a garnishment and not a tax on income, it is not refundable and it skirts the whole rich v poor nonsense everyone pays. Local governments have figured this out as well. The City of Philadelphia has chased out the rich and those left behind and brain-dead and just like throwing their money down the drain. Property taxes are rising because once again this is free of income. Regardless what you have in income, you owe taxes on the property you have even if you do not have a job. The city of Scranton, Pennsylvania reduced all government wages to minimum wage. In Spain, Catalonia, Spain's most indebted region, announced it could no longer pay subsides in July to hospitals, old age homes and other social services. In South America, Argentina is also in economic decline thanks to debt and there too we see local governments imploding. Normally, the provincial cities receive funding from the provincial governments. However, this has dried up in some areas shoving cities into cash-strapped debtors who cannot pay their bills or even their own employees. They have turned to trying a raffle to determine which civil servants will receive their pay first. Employees will queue up to get paid and when the money runs out, those in the end of the line are out of luck. The first draw for the raffle took place on Friday, July 20th. Only 23 of the town's 92 employees received their pay.

The mainstream press is simply not covering these issues. Federal governments continue to suppress free elections and free speech. In Spain, watch this one closely. Right now 6 out of 17 Spanish regional provinces are is serious budgetary crises. Since the federal Spanish government is itself is bankruptcy, there will be no white knight on the horizon. Capital is fleeing everywhere, as it rightly should. Governments are in hot pursuit determined to destroy Western Civilization as if they confiscate every dime from the private sector this will somehow miraculously save the world. Capital outflows from Spain have been more than 41.3 billion ($50.7 billion) in May, quadrupled to the outflow one year ago according to figures released by the Spanish central bank. For the first five months of 2012, a total capital outflow has been about 163. This massive capital outflow is the same pattern we saw when our computer forecast the collapse of Russia that created the Long-Term Capital Management debacle in September 1998. This capital outflow is stripping banks of deposits and was the reason behind the banking conglomerate, Bankia, having requested a bailout in May. The Spanish government 's response has been to try to punish capital leaving. They have imposed fines and criminal punishment as always since no0 government respect human rights when it comes to their pocket-book. The new restrictions imposed by Spain on capital are fine of 10,000 for taxpayers who do not report their foreign accounts; fines of 5,000 for each additional account; there can be no cash transactions greater than 2,500; and these restrictions apply to businesses as well as individuals. In other words, Spain is so desperate for money, they will destroy business with such restrictions. Governments are out of control. This is the worst possible outcome we face globally. The United States has lowered the $10,000 reporting on the movement of cash to $3,000. They are going to cause a worldwide economic implosion of untold proportion. They are now trying to criminalize natural human behavior of protection ones self-interest from basically thugs. This is like saying the police can beat your wife or child and if you dare try to defend them, you go to jail for obstruction of justice. You cannot confiscate the wealth of any individual because you are fiscally irresponsible. This is like a landlord renting you an apartment and saying that at any time he can raise the rent if he spent too much money having a good time.

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The individual is always screwed. In Iceland, mortgages are adjusted according to the currency fluctuations. If you borrow 1 million Icelandic krna and the currency declines by 50%, you now owe 2 million. Because the banks were brain-dead in their investments, now they have put that burden on the homeowner. People now owe more than what they paid for the house. Wages do not fluctuate in such a manner. The Spanish "bailout" of 100 billion is a joke. This amount is nothing compared to what Spanish banks are drawing from the ECB at this time. Where the money is supposed to come from and how is this going to reverse the worldwide debt implosion? Spain asked Germany, for an additional 300 billion. Germany is being dragged down the rabbit hole for the Debt to GDP ratio is up to 90% thanks to all these EU bailouts. In reality, Moody's has put the Germany on a negative watch and it could lose its AAA credit rating as was the case with France last year. The IMF is simply dead in the water. The Sovereign Debt Crisis is brewing. We will present the only possible solution at the San Diego Conference along with how to shelter your net worth and survive what could become the fall of Western Society because governments everywhere simply refuse to live within their means and stop this crazy borrowing with no intention of ever paying anything back. This Conference will be held on Saturday September 22nd & Sunday September 23rd at the Hilton San Diego Bayfront to host this event. The hotel is located on the bay with city views and is in walking distance to the Gaslamp quarter and PETCO park. You c an view more information about the hotel, including room rates and a photo gallery athttp://www.hiltonsandiegobayfront.com/. We at Armstrong Economics are very excited to host our 2012 U.S. event at this stunning venue.

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Because the economy is becoming so dangerous on a global scale and we are on the verge of a real economic implosion, we will offer the summary session on Sunday at $750 and the two day Event at $1500. The full service event with the 6 month subscription to the Global Capital Market Watch, which will be necessary to monitor the world economy at a glance, will be available for $2,000.

This will be exclusively a forecasting conference. We will be going over all the major world share markets, metals, agricultural, bonds, and currencies of North America, Europe, Asia, Australia-NewZealand. We are trying to make this available to the average investor who is forced to make the same decision a hedge fund manager does because of regulation that blocks global management availability for the average person. The summary section on Sunday is available for $750. The two forecasting event is $1500 and those wishing to include updates and the Global Market Watch for 6 months will be $2,000.

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