The Story

Martin Arthur Armstrong (born November 1, 1949 in New Jersey) is the former chairman of Princeton Economics International Ltd., once leading multinational corporate advisor with offices in Paris, London, Sydney, Hong Kong and Tokyo. He was hailed as Economist of the Decade and was Hedge Fund Manager of the year in 1998 after correctly forecasting the collapse of Russia that led to the implosion of Long Term Capital Management.

His advice has been sought by numerous governments with regards to the global economy from China to even the US Congress. Armstrong is the developer of the Economic Confidence Model based on business cycles and best known for calling the crash of 1987 to the very day.

A millionaire at the age of 15

At the age of 13, Martin Armstrong began working at a coin and stamp dealership and was a millionaire in 1965 at the age of 15. After becoming the manager of his employer’s store, he and a partner opened a collectors’ store when he was 21. After high school, Armstrong attended the RCA Institute and audited a few courses at Princeton, but he never earned a college degree.

Over time, the forecasting became his business. Much of it was rooted in cycles research for which he  traveled to London to the British Museum Newspaper Library and put together daily historical data on prices and exchange rates. He constructed what he called an Economic Confidence Model (also called the “Pi” cycle model), which he relied on to predict an upturn in the price of commodities in the early days of 1977. He published long term forecasts, which are still monitored today by the financial press.

Armstrong progressed from gold coin investments to following commodity prices and collecting gold coins and antiquities. Armstrong was a frequent contributor to academic journals and often was sought for comment on financial topics. He was also chairman of the Foundation for the Study of Cycles, an international research and educational institution, established in 1941 as a non profit corporation by economist Edward R. Dewey and dedicated to the interdisciplinary study of finding and analyzing recurring patterns.

“For $33.50, You Can Have a Minute With this Commodities Advisor”

In 1983 Armstrong began accepting and fulfilling paid subscriptions for a commodity market forecast newsletter. He formed three corporations for the provision of commodity services: Princeton Economic Consultants, Inc. (“PEC”), Economic Consultants of Princeton, Inc. (“ECP”) and Armstrong Report, Inc. These corporations provided consulting services, seminar programs, written reports, telephone and telex messages, and account management services. In the nineties, Armstrong wrote a heavily researched but quixotically told two-volume account of the Great Depression called “The Greatest Bull Market in History.”

On June 27, 1983, The Wall Street Journal featured in an article “For $33.50, You Can Have a Minute With this Commodities Advisor,” just how much his advise was worth.

On November 8, 1985, The Chairman of the Council of Economic Advisors (US) Mr. Beryl Wayne Sprinkel answered in a letter the concerns Armstrong addressed regarding intervention into foreign exchange markets.

In fall 1987, Armstrong was invited by the Brady Commission to share his views on the 1987 market crash, which he predicted to the precise day using his computer models. The target date of 1987.8 was precisely October 19th 1987, the day of the low. In June 1989, The Australian Financial Review published an article about Armstrong and his view on interest rates. In the Jan/Feb 1990 issue of “EQUITY” magazine, he was named “America’s top economist”. In July 1996, he was invited by the United States House Committee on Ways and Means for a testimony regarding global capital flows.

On May 20, 1997, Armstrong reminded the United States Secretary of the Treasury, Robert Rubin, that his policy would increase volatility and provided insider favoritism. United States Department of the Treasury Senior Deputy Assistant Secretary, Timothy Geithner, responded in a letter on June 4, 1997, that the United States Department of the Treasury felt comfortable with their policy. Also in 1997, Armstrong was invited to advise the People’s Bank of China during the Asian Currency Crisis. In the April 1998 issue of the Journal “Share International”; he was forecasting the destabilizing effect of European Union on the world economy.

In 1998, Armstrong started to manage a hedge fund on behalf of Magnum Global Investments. Using his theory that boom-bust cycles occur like clockwork every 8.6 years, he correctly called Russia’s financial collapse in 1998 and also pointed to a peak just before the Japanese stock market, Nikkei 225, crashed in 1989. In the United Kingdom, a popular financial magazine Money Week, published an article on Martin Armstrong on March 27, 2007, titled “The Strange Case of the Jailed Market Genius”. In that article they highlighted the model had predicted a major top in financial markets for February 27, 2007, with the next major bottom being June 18, 2011.

On October 12, 2009, the magazine The New Yorker published an extensive article on Martin Armstrong, titled “The Secret Cycle – Is the Financier Martin Armstrong a Con Man, a Crank, or a Genius?”

Circular Reasoning: A Market for Pi in the Sky?

The Legal Case – Summary

Armstrong was indicted on September 29, 1999 in the United States District Court for the Southern District of New York for an alleged fraud, where he was claimed to have been involved in a conspiracy with employees of Republic New York bank involving Japanese investors.

In November 1999, several Japanese investors, such as the Amada Corporation, Japan’s largest manufacturer of metalworking machinery, and one of Armstrong’s clients, filed a lawsuit against Republic New York and two officers, accusing them of fraud. In the court papers filed, Amada sought recovery of at least $123 million plus punitive damages. The complaint made accusations of securities fraud against Republic New York, two subsidiaries and two officers. One officer was immediately suspended and one was replaced.

Republic New York first tried to claim that its employees, who were illegally trading in accounts belonging to Armstrong, had conspired with Armstrong to hide their losses from the Japanese. However, after it became clear that the accounts did not belong to the Japanese investors but to Armstrong, as they had simply swapped their depreciated Japanese portfolios for low yielding Princeton Notes and not involving any funds management), Republic New York plead guilty on December 17, 2001, to fraud in federal court in connection with the fraud.

Republic New York agreed upon a restitution order on January 9, 2002 to pay $606 million in a civil settlement with 57 Japanese note holders to fully settle their claims. Its executives received immunity provided they returned all the money. Republic New York’s new parent company HSBC then applied for a lifetime gag order on Armstrong to prevent him from assisting the Japanese in lawsuits against them and to prevent Armstrong from revealing his version of the case.

The U.S. Securities and Exchange Commission’s Armstrong case file was lost when the September 11 terrorist attack obliterated its offices, in 7 World Trade Center. While Armstrong was in detention while awaiting trial, the court appointed receiver, Tancred Schiavoni, tried to get hold of the uncompiled model source code (p.4), which was Armstrong’s key to make all the accurate market predictions in the past, but Armstrong refused to turn this code over.

As Armstrong did not produce the assets or documents (source code) that were requested by the government, Judge Richard Owen ordered him jailed. While in most such cases, a person is held for contempt for 18 months at most, Judge Owen repeatedly reimposed the jail time, demanding the production of the materials. He was removed from the case by a panel of the United States Court of Appeals for the Second Circuit after justices decided the case needed “a fresh look by a different pair of eyes.”

Armstrong pressed for a speedy trial to be released, as there was no money missing after Republic New York paid the money back they had stolen. To prevent that, the government disgorged all of Armstrong’s lawyers and had him stripped of counsel as well as of the company. This took place in an extraordinary closed court proceeding, where the government had the press illegally removed from the courtroom on April 24, 2000. The Associated Press reported the incident and posed the question on April 26 2000, “wondering if the New Jersey market forecaster can get a fair trial.”
The government then created a civil contempt charge and despite the statute limiting such contempt to 18 months, he was kept in prison on contempt without lawyers, trial, or charges for over 7 years the longest federal civil contempt of court imprisonment in American history.

As the Wall Street Journal said in their January 8, 2009, “No Charge: In Civil-Contempt Cases, Jail Time Can Stretch On for Years,” there is no right to a jury trial in a civil contempt case. Unable to move to trial for such a long time, Marty didn’t see another way but to plead guilty.

For apparently destroying prison property, he was suddenly moved into solitary confinement (the “hole”) for 12 consecutive days and removed from his legal defense material that was critical for his trial. In a bargain plea, the government agreed to drop 23 of the 24 criminal counts, if he plead guilty on August 17, 2006 to one count of conspiracy. Specifically, “for merging/commingling investors’ accounts with his own trading accounts by Republic Bank’s suggestion but without informing the investors” (p.21). This ignored the fact that Republic New York confirmed in a letter in late 2001, replying to Japanese investors (who filed a complaint against them), “that Armstrong and his Princeton entities were contractually allowed to merge/commingle funds” as all accounts at Republic New York related to Armstrong or his Princeton entities were fully controlled by Armstrong (p.7). By ignoring these facts, the judge sentenced Armstrong on April 10, 2007, to an additional five years in prison.

He was released from prison on September 2, 2011. On April 18, 2012, Armstrong wrote an open letter to the former U.S. Securities and Exchange Commission receiver, Mr. Tancred Schiavoni. Armstrong provides an overview of his version of the case.

Armstrong was indicted on September 29, 1999 in the United States District Court for the Southern District of New York for an alleged fraud where he was claimed to have conspired with employees of Republic New York bank involving Japanese investors.
In November 1999, several Japanese investors such as the Amada Corporation, Japan’s largest manufacturer of metalworking machinery, and one of Armstrong’s clients, filed a lawsuit against Republic New York and two officers, accusing them of fraud. New York Times, November 30, 1999

In court papers filed, Amada sought recovery of at least $123 million plus punitive damages. The complaint made accusations of securities fraud against Republic New York, two subsidiaries and two officers. One officer was immediately suspended and one was replaced.

Republic New York at first tried to claim its employees, who were illegally trading in accounts belonging to Armstrong had conspired with Armstrong to hide their losses from the Japanese. However, after it became clear that the accounts did not belong to the Japanese investors but to Armstrong as they had simply swapped their depreciated Japanese portfolios for low yielding Princeton Notes and not involving any funds management), Republic New York plead guilty on December 17, 2001, to fraud in federal court in connection with the fraud.

Republic New York agreed-upon a restitution order on January 9, 2002 to pay $606 million in a civil settlement with 57 Japanese Note holders to fully settle their claims and its executives received immunity provided they returned all the money. New York Times, December 18, 2001

Republic New York’s new parent company HSBC then applied for a lifetime gag order on Armstrong to prevent him from assisting the Japanese in lawsuits against them and to prevent Armstrong from revealing his version of the case.  The U.S. Securities and Exchange Commission’s Armstrong case file was lost when the September 11 terrorist attack obliterated its offices, in 7 World Trade Center.
Security and Exchange Commission Document, April 4, 2003

While Armstrong was in detention while awaiting trial, the court appointed receiver Tancred Schiavoni tried to get hold of the uncompiled model source code (p.4) which was Armstrong’s key to make all the accurate market predictions in the past but Armstrong refused to turn this code over.
Attorney letter, November 1, 2000

As Armstrong did not produce the assets, as well as documents (source code) that were requested by the government, Judge Richard Owen ordered him jailed. While in most such cases, a person is held for contempt for 18 months at most, Judge Owen repeatedly reimposed the jail time, demanding the production of the materials. He was removed from the case by a panel of the United States Court of Appeals for the Second Circuit after justices decided the case needed “a fresh look by a different pair of eyes.” New York Times, April 28, 2007

Armstrong pressed for a speedy trial to be released, as there was no money missing after Republic New York paid the money back they had stolen. To prevent that, the government disgorged all of Armstrong’s lawyers and had him stripped of counsel as well as of the company. AP Online, April 27, 2000

This took place in an extraordinary closed court proceeding where the government had the press illegally removed from the courtroom on April 24, 2000. The Associated Press reported the incident and posed the question on April 26, 2000 “wondering if the New Jersey market forecaster can get a fair trial”.
Associate press, April 26, 2000

The government then created a civil contempt and despite the statute limiting such contempt to 18 months he was kept in prison on contempt without lawyers, trial, or charges, for over 7 years the longest federal civil contempt of court in American history. New York Times, August 18, 2006

Unable to move to trial for such a long time as there is no right to a jury trial in a civil contempt which the Wall Street Journal mentioned in their January 8, 2009 issue saying: “No Charge: In Civil-Contempt Cases, Jail Time Can Stretch On for Years”, he didn’t see another way but to plead guilty.
New York Times, February 16, 2007

For apparently destroying prison property, he was being suddenly moved into solitary confinement (the “hole”) for 12 consecutive days and being removed from his legal defense material that was critical for his trial. Bloomberg News, September, 2012

In a bargain plea, the government agreed to drop 23 of the 24 criminal counts if he was pleading guilty on August 17, 2006 to one count of conspiracy “for merging/commingling investors’ accounts with his own trading accounts by Republic Bank’s suggestion but without informing the investors” (p.21 court transcript August 17, 2006 ) despite the fact that Republic New York confirmed in a letter in late 2001 replying to Japanese investors (who filed a complaint against them) “that Armstrong and his Princeton entities were contractually allowed to merge/commingle funds” as all accounts at Republic New York related to Armstrong or his Princeton entities were fully controlled by Armstrong (p.7 Reply letter Republic Bank).

By ignoring these facts the judge sentenced Armstrong on April 10, 2007, to an additional five years in prison. New York Times, April 28, 2007

He was released from prison on September 2, 2011. On April 18, 2012, Armstrong wrote an open letter to the former U.S. Securities and Exchange Commission receiver Mr. Tancred Schiavoni. Armstrong provides an overview of his version of the case. Open Letter, April 28, 2012