Martin Armstrong's Economic Pi Cycle

I have been doing a lot of work on economic cycles recently and have been unable to find any of Martin Armstrong's articles on the internet.  Both the Martin Armstrong Defense Fund and his Princeton Economic Insitute are no longer accessible. 

Luckly, I saved a copy of his "The Business Cycle and the Future" article which was published on the Defense Fund web site.  I'm re-publishing the paper because I think it's important enough for investors and traders to have ready access to it.  This article was written in September 1999 and identified September 2000 as a major turning point.  Both the S&P 500 and the NYSE made their final highs in that month.  In addition, Armstrong's work identified November 2002 as a major bottom. 

Armstrong identified January 1st, 2005 as the last important turn date - the date which marked the high for the NASDAQ for the year.  The next turn date won't come until 2/27/07.  Whether or not that means the market will remain weak until then is unclear, but it certainly wouldn't come a surprise.  One important thing to remember in looking at all cycles is that the specific date is more important than whether the system identifies it as a high or a low cycle.  The same is true for Martin Armstrong's cycle work.  Until we come closer to the next cycle point, it won't be clear whether it will represent a top or a bottom in the markets and economy. 

The Business Cycle And the Future

By Martin A. Armstrong

Princeton Economic Institute
© Copyright September 26, 1999

---

For many years, I have pursued a field of study that is at best non-traditional. My discovery of a global business cycle during the early 1970's was by no means intentional. As a youth growing up in the 1960's, the atmosphere was anything but stable. I don’t really know if it was Hollywood that captivated my interest in history with an endless series of movies about Roman and Greek history, but whatever it was that drove me, I can only attest to what resulted.

My father had always wanted to return to Europe after serving under General Patton during the war. My mother insisted that she would go only when he could afford to take the whole family. That day finally came and something inside me insisted upon being able to earn my own spending money. I applied for a job despite my age of only 14. It wasn’t much, but on weekends I worked with a coin/bullion dealer. In those days, gold was illegal to buy or sell in bullion form so the industry centered on gold coins issued by Mexico, Hungary and Austria. I soon became familiar with the financial markets as they were starting to emerge. It was this experience that began to conflict with the formal training of school.

One day in a history class, the teacher brought in an old black and white film entitled "Toast of the Town." This film was about Jim Fisk and his attempt to corner the gold market in 1869 that created a major financial panic in which the term "Black Friday" was first coined. In the film was a very young support actor named Cary Grant who stood by the ticker tape machine reading off the latest gold prices. He read the tape and exclaimed that gold had just reached $162 an ounce. I knew from my job that gold was currently selling for $35. At first I thought that the price quote of $162 in the movie must be wrong. After all, Hollywood wasn’t known for truthfulness. Nonetheless, I was compelled to go to the library to check the newspapers of 1869 for myself. This first step in research left me stunned – the New York Times verified $162 was correct.

For the first time in my life, I was faced with a paradox that seemed to conflict with traditional concepts. How could gold be $162 in 1869 and yet be worth only $35 in the 1960's? Surely, inflation was supposed to be linear. If a dollar was a lot of money in 1869, this meant that adjusted for inflation gold must have been the equivalent of several thousand dollars. If value was not linear, then was anything linear?

I began exploring the field of economics on my own and reading the various debates over the existance of a business cycle. Kondratieff was interesting for his vision of great waves of economic activity. Of course, others argued that such oscillations were purely random. Over the years that followed, this nagging question still bothered me. I had poured my heart and soul into history, quickly learning that all civilizations rose and fell and there seemed to be no exception.

I was still not yet convinced that a business cycle was actually definable. Kondratieff’s work was indeed interesting, but there was not enough data to say that it was in fact correct. On the other hand, it seemed that the random theory crowd was somehow threatened by the notion that the business cycle might be definable. After all, if the business cycle could be defined, then perhaps man’s intervention would not be successful. Clearly, there was a large degree of self-interest in discouraging any attempt to define the business cycle. I knew from my study of history that a non-professional German industrialist took Homer and set out to disprove the academics who argued that Homer was merely a story for children. In the end, that untrained believer in Homer discovered Troy and just about every other famous Greek city that was not supposed to have existed beyond fable.

I didn’t know how to go about such a quest to find if the business cycle was definable. Admittedly, I began with the very basic naive approach of simply adding up all the financial panics between 1683 and 1907 and dividing 224 years by the number of panics being 26 yielding 8.6 years. Well, this didn’t seem to be very valid at first, but it did allow for a greater amount of data to be tested compared to merely 3 waves described by Kondratieff.

The more I began to back test this 8.6-year average, the more accurate it seemed to be. I spent countless hours in libraries reading contemporary accounts of events around these dates. It soon became clear that there were issues of intensity and shifts in public confidence. During some periods, society seemed to distrust government and after a good boom bust cycle, sentiment shifted as people ran into the arms of government for solutions. Politics seemed to ebb and flow in harmony with the business cycle. Destroy an economy and someone like Hitler can rise to power very easily. If everyone is fat and happy, they will elect to ignore drastic change preferring not to rock the boat.

The issue of intensity seemed to revolve around periods of 51.6 years, which was in reality a group of 6 individual business cycles of 8.6 years in length. Back testing into ancient history seemed to reveal that the business cycle concept was alive and well during the Greek Empire as well as Rome and all others that followed. It was a natural step to see if one could project into the future and determine if its validity would still hold up. Using 1929.75 as a reference point, major and minor turning points could then be projected forward in time. For the most part, I merely observed and kept to myself this strange way of thinking. In 1976, one of these 8.6-year turning points was quickly approaching (1977.05). For the first time, I began to use this model expecting a significant turn in the economy back toward inflation. My friends thought I was mad. Everyone was talking about how another Great Depression was coming. The stock market had crashed by 50% and OPEC seemed to be undermining everything. I rolled the dice and stuck to it and to my amazement, inflation exploded right on cue as gold rallied from $103 to $875 by January 1980.

As my confidence in this model increased, I began to expand my research testing it against everything I could find. It became clear, that turning points were definable, but the wildcard would always remain as a combination of volatility and intensity. To solve that problem, much more sophisticated modeling became necessary.

As the 51.6-year turning point approached (1981.35), there was no doubt in my mind that the intensity would be monumental. Indeed, interest rates went crazy with prime reaching 22% and the discount rate being pushed up to 17%. The government was attacking inflation so hard, they moved into overkill causing a massive recession into the next half-cycle date of 1985.65. It was at this point in time that the Plaza Accord gave birth of the G5. I tried to warn the US government that manipulating the currency would set in motion a progressive trend toward higher volatility within the capital markets and the global business cycle as a whole. They ignored me and claimed that until someone else had such a model, they did not believe that volatility would be a concern.

The next quarter cycle turning point was arriving 1987.8 and the Crash of 1987 unfolded right on cue. It was at this time that a truly amazing development took place. The target date of 1987.8 was precisely October 19^th, 1987 the day of the low. While individual models specifically based upon the stock market were successful in pinpointing the high and low days, I did not think for one moment that a business cycle that was derived from an average could pinpoint a precise day; it simply did not seem logical.

After 1987, I began to explore the possibility that coincidence should not be just assumed. I began researching this model even more with the possibility that precision, no matter how illogical, might possibly exist. I began viewing this business cycle not from a mere economic perspective, but from physics and math. If this business cycle were indeed real, then perhaps other fields of science would hold a clue to this mystery. Physics helped me understand the mechanism that would drive the business cycle but mathematics would perhaps answer the quantitative mystery. I soon began to understand that the circle is a perfect order. Clearly, major historical events that took place in conjunction with this model involved the forces of nature as well. If this business cycle was significant, surely it must encompass something more than the mere economic footprints of mankind throughout the ages.

The Mystery of 8.6

At first, 8.6 seemed to be a rather odd number that just didn’t fit mathematically. In trying to test the validity of October 19^th, 1987 being precise or coincidence, I stumbled upon something I never expected. This is the first time I will reveal something that I discovered and kept secret for the last 13 years. The total number of days within an 8.6-year business cycle was 3141. In reality, the 8.6-year cycle was equal to p (Pi) * 1000. Suddenly, there was clearly more at work than mere coincidence. Through extending my studies into physics, it became obvious that randomness was not a possibility. The number of variables involved in projecting the future course of the business cycle was massive, but not completely impossible given sufficient computer power and a truly comprehensive database. The relationship of 8.6 to p (Pi) confirmed that indeed the business cycle was in fact a perfect natural cyclical phenomenon that warranted further investigation. Indeed, the precision to a day appeared numerous times around the world in different markets. Both the 1994.25 and the 1998.55 turning points also produced clear events precisely to the day. The probability of coincidence of so many targets being that precise to the day was well into the billions. Indeed, the relationship of p to the business cycle demonstrated the existence of a perfect cycle that returned to its point of origin where once again it would start anew. The complexity that arose was that while the cycle could be measured and predicted, precisely which sector of the global economy would become the focal point emerged as the new research challenge.

It was also clear that the driving forces behind the business cycle had shifted and intensified due to the introduction of the floating exchange rate system back in 1971. My study into intensity and volatility revealed that whenever the value of money became uncertain, inflation would rise dramatically as money ceased to be a store of wealth. Numerous periods of debasements and floating exchange rate systems had taken place throughout recorded history. The data available from Rome itself was a spectacular resource for determining hard rules as to how capital responded to standard economic events of debasement and inflation. The concept of Adam Smith’s Invisible Hand was valid, but even on a much grander scale involving capital flow movement between competing economies. The overall intensity of the cycle was decisively enhanced creating greater waves as measured by amplitude by the floating exchange system. As currency values began to swing by 40% in 4-year intervals, the cycle intensified even further causing currency swings of 40% within 2-year intervals and finally down to a matter of months following the July 20^th, 1998 turning point.

The Domino Effect

The events that followed 1987 were all too easy to foresee. The G5 talked the dollar down by 40% between 1985 and 1987 essentially telling foreign capital to get out. The Japanese obliged and their own capital contraction led to the next bubble top at the peak of the 8.6-year cycle that was now due 1989.95. As the Japanese took their money home for investment, the value of their currency rose as did their assets thereby attracting global investment as well. Everyone was there in Tokyo in late 1989. Just about every investment fund manager globally was touting the virtues of Japan. As the Japanese bubble peaked, capital had acquired a taste for foreign investment. That now savvy pool of international investment capital turned with an eye towards South East Asia. Right on cue, the capital shifted moving into South East Asia for the duration of the next half-cycle of 4.3 years until it too reached its point of maximum intensity going into 1994.25. At this point, international capital began to shift again turning back to the United States and Europe, thus causing the beginning of a new bull market in a similar manner to what had happened in Japan. In fact, 1994.25 was once again the precise day of the low on the S&P 500 for that year. As American and European investment returned home, the steady outflow of capital from South East Asia finally led to the Asian Crisis in 1997. In both cases, Japan and South East Asia blamed outsiders and sought to impose punitive measures to artificially support their markets. In Japan, these interventions have left the Postal Savings Fund insolvent as public money was used to support the JGB market. Financial institutions were encouraged to hide their losses and even employees from the Minister of Finance were installed in some cases engaging in loss postponing transactions of every kind. Major life companies were told not to hedge their risks for fear that this would make the markets decline even further. Thus, the demise of Japan that would have been complete by 1994 was extended by government intervention that has most likely resulted in a lengthening of the business cycle decline into 2002.85.

The next peak on the 8.6-year business cycle came in at 1998.55, which was precisely July 20^th, 1998. While the intensity was defined rather well by the model’s forecast of 6,000 on the Dow by the quarter-cycle target of 1996.4 followed by 10,000 for 1998, the development of highly leveraged hedge funds created a trap that was not fully anticipated. It was clear that the European markets had captured the greatest intensity between 1996 and 1998 and that Russia too had reached our target for maximum intensity. However, the excessive leveraging of funds like Long-Term Capital Management had significantly created the peak in volume as well. Thus, the spread trades were so excessive, that the collapse that was to be expected, took on a virus type of affect. As Russia moved into default, and LTCM moved into default, the degree of leverage caused a cascade of liquidation that was spread around the world. Everything became affected causing the collapse in liquidity and credit to further undermine the global economy as a whole. Despite the new highs in US indices into 1999, the broader market has failed to keep pace and the peak in both liquidity and volume remains clearly that of 1998.55.

The Future

While this business cycle can be calculated on quarter-cycle intervals of 2.15 years into the final peak for this major wave formation of December 24^th, 2032. Though this is long beyond my life expectancy, there is so much more behind the true understanding of the driving forces within the business cycle. I have learned that it is easy to claim coincidence and ignore the telltale signs of a hidden order. It is easy to argue that there is no basis for such a model without ever making an effort to test results. If everyone stopped with such criticism, most of ancient Greece would still be buried and Homer would still be considered a book for children. Man would not fly or travel to the moon. A cure for cancer would not be sought and progress would simply not exist. But furthering our understanding is part of humanity. Like law, that when strictly enforced deprives society of justice when circumstances are ignored, it is also the sin of ignorance toward new concepts that deprives mankind of progress and ultimately our posterity.

The Economic Confidence Model in 2.15-year intervals

1998.55... 07/20/98

2000.7.... 09/13/00

2002.85... 11/08/02

2005.... 01/02/05

2007.15... 02/27/07

2009.3... 04/23/09

2011.45... 06/18/11

2013.6... 08/12/13

2015.75... 10/07/15

2017.9... 12/01/17

2020.05... 01/26/20

2022.2... 03/22/22

2024.35... 05/16/24

2026.5... 07/11/26

2028.65... 09/04/28

2030.8... 10/30/30

2032.95... 12/24/32

In the next issue of the WCMR, the details of this business cycle will be expanded to provide a list of turning points down to the 8.6-month interval. There is a wealth of knowledge that lies ahead if we are not afraid to explore. Regularity of the business cycle does not mean that we lack free will. For it has taken me 30 years of observation to get this far. The peak for one nation may be the low for another. For within the scheme of global capital flows, not everyone can enjoy a boom simultaneously. For every gain in trade, there must be someone who loses. This is simply the nature of the global economy. The greatest booms unfold when capital concentrates in one sector. When that capital shifts, you also find the result of the greatest financial panics in history. An individual will always possess the free will to follow the crowd or strike out with his own independence to buck the trend. There will be those who believe in the business cycle and use it to their advantage just as there will be those who refuse to acknowledge its existence. As long as not everyone believes, the cycle will exist forever. The regularity of the business cycle is not determined by man alone; for within its deep calculations resides the very heart of nature itself. Like the Biblical forecast of Joseph that seven years of plenty will be followed by seven years of famine, understanding the nature of the business cycle can certainly enhance our ability to better manage our affairs rather than constantly add to the intensity of the cycle through our own error of intervention. For now, it is more likely that the politics will continue to act in the opposite direction of the cycle adding to its intensity and enhancing its volatility. Perhaps I have been an evangelist seeking to point out that the economy is like a rain forest – destroy one species and it will ripple through the entire system. The global economy to me is the same delicate system that cannot be viewed in isolation, but only through its collective integration. The failed labor policies of Europe have created perpetually high unemployment and the worst record of economic growth for the past 30 years. Instead of objectively reviewing what has happened, Europe seeks to federalize and strengthen the very controls that already exist. Communism and socialism are all political byproducts of our failure to understand the business cycle. Blaming the rich, your neighbor or a particular race are all vain quests to explain the cause of a cycle that has moved through the boom bust phase. Who knows, perhaps it is possible that if for one moment we truly understood the business cycle and worked in harmony with it, the possibility of reducing the amplitude just might result in a more stable political-economy for all mankind.

Comments

[javier]

kris - where can I get the buy/sell info in the quartly level as opposed to the yearly cycle

[Maynor]

I found this article helpful. I read literature back in 1997, when at CSULB, and I can recall my teacher saying that we should buy a copy of the book. He brought several copies to sell but I didn't buy one. FOOL ME.

Well as guesss any one with time and knowledge can play the "Da Vinci Code" role. Wizard or not this guy is effective with errors but very close data.

[It's the PHYSICAL economy, stupid!]

The article is a nice read. But to really get a grasp of our economy problems, one must turn to the greatest economist of our day: Lyndon H LaRouche. He stems from a long tradition of ecocomists who look at the physical production of the nationstate in commerce and development. The reason why we are in such a wreck is because we are living in a neoliberal globalist world that has sought to destroy the physical production of nations for a market driven speculation.

Such has been the goal of Alan Greenspan, Schultz and Felix Rothatyn. They wish to weaken the federal goverments ability to regulate commerece. To provide for the general welfare as outlined in the preamble of our constitution. Now, im not suggesting any socialist/communist reforsm. Im just saying that we have elected fools.

Hark back to the founding. When then secretary of treasury Alexander Hamilton and the Federalist PArty gave the "Report on Manufactures". Study the socalled |"Era of Good Feeling" when the American Whigs like Henry Carey improved the economy. And the days of FDR and the New Deal. In those days, a more enlightened politicall economists knew the best way to provide for the nation, and indeed the world, was to abandon the liberal "each for his own" and turn to the republican method of developing nation states.

[Bally]

I do believe that everything in nature is cyclical and predictable. Man is PART of the natural process and the way he thinks is part of the process...the Economic cycles that are created by man will therefore be part of the process and hence be predictable. We simply need to understand the equation and logics that support it.
I am impressed with the work of Armstrong and will recommend that more work be done to educate ourselves of the discovery...... We may discover other things that can be applied to improve our existence in the universe!

[Lawrence G Scott]

Brilliant,commonsensicle not forced hense a just result (conclusion)

[BW]

A fantastic article that has polarized some and yet has left others in the middle ground area of not knowing what to do....just like the market and so many other events in business and life. I happen to believe in the proven cycle theory, so you know that I WILL be putting my money where my mouth is!

[javier]

Does any one know where I can find a copy of the WCMR issue discussed in this article? If this article was published back in Sept 1999, the WCMR mentioned would be in 1999.

[Jim]

I find it interesting that the market in China corrected 9% on the 27th. It was still the 26th in the US.

[Richard]

everything is utter claptrap to ignorant people who dont bother to study things properly and just shoot their mouths off like redneck hicks....

this is not a prediction of market tops... it's a prediction of economic confidance..... that may or may not correspond exactly with the market movements....

but damn it's bang on so many times, including a 100% bullseye yesterday....

and you gotta wonder why the guy has been in jail for 7 years with no trial... that's no right.....

[Johny]

Life is funny isnt it, cycles yeah thats about it; today we have the abillity to move information very quickly and people tend to react. so thats that it is a cycle and people react. If we keep emotion out of it we can clearly see a pattern do the math all you want life has ups and downs if we expect that we are all better off.

Dont react too quickly spend it all you cannot take it with you

[Henry Good]

I appreciate you writing about this man and his cycle work. I was involved primarily in the commodities market and I had two friends who worked very hard on cycles. Somehow I missed Armstrongs work and predictions. I don't know why he is in jail and I have not completely read this info, but I just wanted to thank you.

[Bluestar]

I you are interested in the E-book version of Martin Armstrong's "The Greatest Bull Market in History", this link was posted about 8 months back by someone selling a whole bunch of e-book titles for $5 each.

http://www.activeboard.com/forum.spark?forumID=60611&p=3&topicID=7328370

[steve]

people, do not forget that Pi is an irrational number, therefore no predicted dates can be "exact". Just pretty damn close. Close enough for me at least.

[slyhill]

Is the tail wagging the dog here?

[DD]

Compare the graph above (till 2007.15) with the graph of any major index such as S&P and you will see that they do not correspond.

[max]

I just came to know about this "fortune teller" named Martin Armstrong today. Its hard to believe he can be so right all the times. Has anyone looked at the predictions or cycles that he missed?

[Bluestar]

I just found a site that goes into Armstrong's history. It infers that despite his cycles research, he turned out to be a very poor trader (or was he manipulated to seem like one?!)

http://nihoncassandra.blogspot.com/2006/08/enigma-of-martin-armstrong.html

[Josh]

http://onlinebooks.library.upenn.edu/webbin/book/lookupid?key=olbp10889

[catherine]

Lots about Martin's 7 year imprisonment without trial on this site. This is a truely sad story and sadly reflects and mirrors what the US government is doing around the globe.

http://www.topix.net/forum/business/TS8IHELKS6G8FDV65

[martha]

read this articule and check rem

[Verne Carty]

Armstrong's work on the greatest bull market is archived here:
http://web.archive.org/web/20000817012023/http://www.princetoneconomics.com/Research/GBM/GBM-MAST.HTM#1

[NOOBIE]

Of course this so called cycle could go on to work, not because of its mathematical content, nor its probability support, but because people make it happen. If someone sets a good cycle calendar that matched some dates by coincidenc and works hard at letting everyone know of it, then these people set it off to gain better stock prices or whatnot, so I can bet that anyone that knows about this will profit on march 2008 because they will know that others will make this happen like yesterday. So we can pretty much say it doesnt work because of magic, mathematical properties nor probability nor cycles, it just works because its convenient for people to make it work on those dates and profit from it...just my 2 cents!

[thor]

the article shown does not describe enough of his 'extensive research' to know how much he's putting us on or really has vetted his thesis. i have another thought process on all this; the united states enjoys a preeminent position in the world from nearly every perspective (size, location, freedoms, opportunity, decadence, etc) and if you've traveled much you realize just how much impact EVERYTHING that happens in the US affects other people and other countries - you cannot go to the middle of nowhere like Bhutan or New Guinea without hearing daily, complete reports on what happened in the us markets and politics (i'm talking about even tribal areas where the head honchos get daily updates). i suggest that many other countries and their people want so badly to knock the US down or at least to AFFECT the US to make themselves feel better about their situation or to materially improve their situation that they will seize on any idea that can be plausibly used by multiple nations to drive a movement in the US markets. think about it, so many people in so many countries just sitting by and WATCHING the US all day while they feel they can do nothing but wait for the impact of US markets and politics on their own nations prosperity - the globe is full of people that want to see the US go down OR at least be able to affect the US in a real way. so perhaps the asians that follow this guys theory and others have a real sub-agenda that if they all make a move in the same direction they can affect the US markets on a given day. this idea has been tried successfully by george soros in the past and he will try it again - he has made comments publicly about his bearish sentiments on a sector and watched the other anti-US people in the world AND in the US follow his lead to the detriment of the average investor. our biggest concern should be the nutcases in the democratic party that are truly against the very idea of the US - they do not want democracy and capitalism but a utopian and impossibly childish neo communist future where the entire world will live as one in love....john lennon was a stoner and a dreamer but that does not make him a prophet. the US must protect itself from the evil within, particularly the democrats and their alliances with those worldwide opposed to our way of life.

[thor]

the article shown does not describe enough of his 'extensive research' to know how much he's putting us on or really has vetted his thesis. i have another thought process on all this; the united states enjoys a preeminent position in the world from nearly every perspective (size, location, freedoms, opportunity, decadence, etc) and if you've traveled much you realize just how much impact EVERYTHING that happens in the US affects other people and other countries - you cannot go to the middle of nowhere like Bhutan or New Guinea without hearing daily, complete reports on what happened in the us markets and politics (i'm talking about even tribal areas where the head honchos get daily updates). i suggest that many other countries and their people want so badly to knock the US down or at least to AFFECT the US to make themselves feel better about their situation or to materially improve their situation that they will seize on any idea that can be plausibly used by multiple nations to drive a movement in the US markets. think about it, so many people in so many countries just sitting by and WATCHING the US all day while they feel they can do nothing but wait for the impact of US markets and politics on their own nations prosperity - the globe is full of people that want to see the US go down OR at least be able to affect the US in a real way. so perhaps the asians that follow this guys theory and others have a real sub-agenda that if they all make a move in the same direction they can affect the US markets on a given day. this idea has been tried successfully by george soros in the past and he will try it again - he has made comments publicly about his bearish sentiments on a sector and watched the other anti-US people in the world AND in the US follow his lead to the detriment of the average investor. our biggest concern should be the nutcases in the democratic party that are truly against the very idea of the US - they do not want democracy and capitalism but a utopian and impossibly childish neo communist future where the entire world will live as one in love....john lennon was a stoner and a dreamer but that does not make him a prophet. the US must protect itself from the evil within, particularly the democrats and their alliances with those worldwide opposed to our way of life.

[Chip Doss]

1. Mathematics is the language of Nature
2. Everything around us can be represented and understood through numbers
3. If you graph the numbers of any system, patterns emerge...
Therefore there are patterns everyhwhere in Nature...The patterns of Nature transcend the will and whim of Man, an insignificant, random anomaly hardly capable of getting through the day, much less disrupting the comparatively infinite forces of Nature. We are at our best when we observe and describe Nature, never when we attempt to control or impose our will upon it. Of course economic systems being a part of the natural universe are cyclical and therefore predictable. Because you don't have the capacity to amplify to subtle nuances defining a system and therefore declare that the system is random or anarchical is a confession of your ingnorance, not an accurate representation of reality.