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The DNA

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Global

Co pyright Hartin A. Arms t r ong All Rights Reserved Septeml)er 17th, 2009

Comments Welcome; ArmstrDngEcnnomics@GMail.COM (Interuational1y)

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A C K NOW LED GEM E N T S

I would like ·to thank the many p~ople who have been writing from around the world. It is encouraging

to know. that the~e are so many people who a~~ interest~d in upoovsrin9 the truth~ I have also spGcial thanks for s o many providing valuable ins igh t into tre.ncis around the· world f~om China, Soviet R~public$T South Africa, Brazil, Aust~alianr and India. I believe we can 5u~vive the· folly of governments· e.vllln if they refuse to listen. The key is under·standing the na t.une of events, and that allo~Ts us to correGtly make. the. decis ion - to be on the oppo~ite. sidE:.

I Wou1d 12ke to also thank all my old· friend and fcrm~r cli~nts for their suppo~t and to know that they have continued to gather· information that se~Ves us all in times of ~risis.

We. a:r;-e. standing_ on the pre.cipice. o£ a new e.ra in global-socia'l-ecoDomi.cs. now We enter this new age is

of pri tical impo;r,tance. Government is inc;;!pable to doing ~nything for any reform, of its own abuse. of power is not

up for negotiation. w~ must weather the sto~m, and to do. so we need to unde~starid its nature. Just as the 1930s G;:eat Dep;r;-E!:ssion se.t· in .moti.on p:r;-ofound· changes that were even man I f'e sc ;.n gaopo;titical confrontations T .we have noW reached such·a C.I;"o"ssroads. 1\.. debt crisis has its tentacles deeply embe.dde.d into'evEry sector right into governme.nt. This is the distinction from a mete stock market crash that never al. te.;t;"s . the. e-conomy long- term. ~"'e ar a seriously still over-leveraged and some banks are·st,~11 try.~ng to be he.dge funds and have·to speculate to make a profit. That is a ke.y warni ng 5.ign that tho worse. is yet to come ~

~ ." I

comments. Suggestions &.Questions

Please mail. to:

Martin AA Armstrong

FeI ~ort Dix CampI #12518-050 PO Box 2000

Fort Dix, NJ O~640

PLE!ISE REGISTER YC1JR EMAIL . AOORESS

:Em .EUT.:iRE ~ NEWS ~C1L..L 'Kl CIJR sr:JRV'!'\il!.L

1m:rGb:ODgEl:PrDIIiCS@~ail. a::M

This Repod Iilay b~ fo;::uraI'ded as you like bfit.;ol.!t c.'ra:tS'~ to indi\Jidl.!~15 .;.r 9OveJ::1r.1alts around thE! ~m~ld. :;:t is ·pr;:lVidE:d <:5 O!; PtJblic Servi= at this ti:r.e llrith.Qu~ cost, because of tha. =iti~al facts tt"la t 1ll~ now 7' ecsd ecol"lomic=all y. Tha cont.arrtis 8.ild desigm; (If thr;: 5ySt ams are i;, f act C:::lpy:dghted •

.l\i: a fub.c~ date, a m::11i eciti~n Qf the 19:86 The! Grea~.Bull P1a~et In Hi!;tory l~ill be rsl:!ased and a ['leu.' bock Iliill 500n ba ouhl.Lshed oil th~ tr.,::lIj8l its2lf - The Gecrne'-..IY -of Ti~. It is I/ital that we -:10 not TurlJ::)t ~'l' 3 '5 a L,;:I::-ld 8conar.v and th~ azz-acaoce tha"'o:. any r ... ti1:lr. C;:!1J1 dictat~ t.o th= '.JJor:ld

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i-B toxil: 1L'2.st~ i:lto th~ ccaan. ::\J~ythiilg is i;,tBI'linked and ~o!uf.i~l"!s <lr~ nev~·~ L561<!t~d ·~·u-~nt5·;- -- --_.

What I discovered was not by some predetermined theory ~ What I have disrovered caIIII'2: by the joint and truly astonishing gathering of reople \rorldwide. The 1985 Eo:;J[1omic Conference in l?rincetcn was magnificent. we had serious people for the first time ever in a single. place. Much of my thinking was forced u!;ICX1 me by having such a global client base. Without that, I doubt that I would have emerged with the understanding that I have. today. I learned fran the clients as much

---as-·wey leamoo·- from-·· rOe·~· ··"f~·~cannDf·· ~sIze·-ooough mY

gratitme to our clientbase, for without them, I too 'WOUld have been only a domestic analyst 'with blinders on who would have tried to reduce all e.Vffits to a

single cause of action that is sanehow just. American egocentric. But it is the Scheua Frequency that is

the eau-de-vie {water of life} that is a code like

. _ .. _ .... ~ .. _~._ ._.n .. _ ..... --~_:that._p.redicts-the-tuture. -~-- .. - .. --~-,.-.- - ...

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The DNA of the

I

Global Eccn:my

Chai..tJtan Princetoo "Eb::xnnics Intetnatiooalt Ltd. FouOOation For ibe Study of Cycles

. A lot of people who have klx:iirKl :me for decades have written to tell me that there has been sort of a free-for-all on my work ,;::ost-1999 with

scme ClS bo.Id to even. plagiarize the Ecoroni.c Confidence IbXU. changing the name and others claiming

to have discovered Pi. 'Ibis seems to be a natural. penalty insofar as those who the government thrQ'iil'S

in piison. Anyooe who owes m:::mey to a prisoner seems to think it is a license to escape the debt., I have seen others who had parcnarshtps and expected their families to be. taken care of, cut off. People just

at times will abandon all ci vili ty it appears during two events (1) when states imprison an individual, or (2} . when there is a natural di.saster and even the police can be seen looting.

I have no problem if people share what I have written and forward whatever you like. We are facing a very difficult period. ahead and the more people who understand the events in perspective, hopefully the intensity can be reduced despite. the corruption of governments.

1

is not the actual source of cyclical activ.ity. It is merely a proof

P I that TIME is subject to gecme.try. This is incredibly irrIportant as

a principle that .established there is a field of science that must be

. . explored and it exists in tangible form, It is an illustration that we

_ . .: as a ~le may learn fram experience and modify our thinking and our

behavior in the future', but where we lack that ability to learn and to progress, lies within our oollective behavior. He. who has the sPld

nakes the rules! And because he can make the rules r he. also thinks he can just dictate to the mary..ets and the people to do his will. When you have this sort of arrogance, you listen to 00 one and certainly not to the experience offered by history. This is why we had the collapse of Russian and the Long TeJ::m Capital Market bailout in 1998. It is why we have the current eo6ronic crisis· that is far worse because it involved the entire debt market that has its tentacles into every aspect of econcrn.yc activity~ It is the debt market r not the sbock market ~ that forms the true

Telarron that support.s the entire ero.nomy. The Investment Banks used this sarre model of He who ~ t:he gold, nBkes the rules! They assumed that by a?ntrolling the. rules thrOugh po.LL tical means I they can dictate to the narkets what they'shall do. We will never see any American Investment Banks criminally or civilly charged, for they play the same game as the state and thus 'they are. exempt from accountability? They did not trade markets and always win because they are brighter than e.veryooe else. They woo, because they o:mtrol the rules just like the pol i t.Lcf.ans ~ If you think:· you have such p::lWer, you

do not oother with even amtemplating whether or not your

power is subj act to the forces beyood your control. ~

It was this dictatorial tcMer that was behind Russia and China on the hack of Marx that mislead those states into thinking they can dictat~ hCJ7.\1 the economy will ruIlA The.' state col.Lapsed because there could be

no response and progress since. they could not even see the evolution of the economy fran

an ivory tower.

Japan suffered the t'lost deoade" for the very same reason. The IDP ·1:elieved it cou.ld rontrol the economy by dictating what trends it wanted.. While. al.lcwing the n free 11 ownership of property, I was shocked to see. that major rompanie.s could rut act on their

.. _ .. __ own. al)d, __ the. lD~ _ pr;:ohiP;l:ted ... heqg!.{)g .. at th~ .

top because tl1ey through if they could just outlaw sellingr the Nikkei would never drop~ That absurd belief destroyed Japant arlO now' while hopes are high r they are the same we saw in East Germany~. There has to be a full retraining of how to be a :real economy •

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President Oharra has surrounded h.itrtself with former bureaucrats who have no practical experience. He is trying the same dooned idea that he wants to force innovation in making the country Hgreed' and you find people in the healthcare field gearing up, This is no different than what Japan and the former USSR and China did. They tried to dictate to ths: economy. SO we have the very same problem as always. We learn. :fran experience ooly as an ittIividua.l, but society is ~e of ever trull learning arrl pr;og;ress¥!I because err the false belief that: he who has the tpld, can make the zules, This is why society cannot evolve without force (revolution) I ar.d it is

_ why. revOlution_ always _ reve,r:tB .. back .. _W _.th~, . _._ . same system - ie Napoleon crowni.ng himself;-

ali ver Cra'mt.rell putting his picture on the

coins :just like the king; America assuming absolute imnuni ty for all government judges

and prosecutors, the same precise injury in

the Declaration of Independence {lUCCk trials)_

--~~ ~ ·-_·w. __ ~_···-

. The ~ Play going on in Washington is all

about control. What the Obarna Administration fails to understand, it is embarking down that very same road as the I.DP followro in Japan, and what they present to the people, is that the fj;lUlt was with the reduction in regulations carried out by the Republicans.

This bullshl t story satisfies the press and those who just hate the idea of the "rich" as well as. every co.q:o.rate conspi racy tha.t has ever been dreamed up. The real cause is that there has been far too much regulation that drove capi tal and jobs away from the United statesr yet there was

NO regulation of those who made an effort to in fact play the same game with the politicians in creating

the rules. .

The assault on the offshore tax shelters is going to come back and wipe out the best; plans of men and tyrants .. The funds offshore are the madri and often the exclusive source of capi tal for the hedge furrls. The hedge funds are the buyers of ths US government paper, because cash carmot l::e insured being just left in bank. accounts beyond $1 00 ,00 a . Thus ~ hedge furrls buy gcwernment paper ana by now searching for who .has accounts offshoret that will

··---migra"te-eo ·hedge· fundS- W (1T foreitig·-Withdrawals--·- _.

and (2) the bedge funds will be targeted next to compel them to prcduce lists of investors. No hedqe fund oparated by an American onshore will be. safe and the prospects of a solid recovery are being in

fact snuffed out by the ~ Play in motion now.

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Running around the world exposed me to hCM' inVestment decisions were .rea.ched in all nations. I worked with the Arabs during the 1970 /80s 1 the ~s 1 Australians 1 Asians from Japan down to Singapore and e.ven was invited. by the Central Bank of China to fly to Beijing. Having clients around the world and. having to solve problems, opened my eyes to comprehend that the Glotel StrucbI:r:'e of the world economy was vastly c::xnple.x, yet at the same time r parfectl y simple.

Currency had become a language of our global economy. Every person translated any foreign involvement into. their home currency and. that determined. whether or· not to even

act oe it by trade Or invest1nent. Capital Flair annng nations was subj ect to the Changes in currency ~ This was starkly different from a gold standard, and negated everything taught in an economics class making most; theories jUst irrelevant~ Yes Adam. Smithl s insight knr:Mn as the Invisible Hacd was still alive, albeit slightly modified in that the selfinterest would noo:' be fil tared through the currency fluctuations at the end of the day.

The Global Sf:::mcture. is rich·. and very dynamic rendering most ~oillic theories

just gibberish. The· notion of Efficient. Market '.Ibeary has been a byproduct of the American egocentric view of the world. It

may have its roots in a Ujust price" going back. to Saint Thcmas ~ST but it has

00 pl.ace in our modern eronomy. Notians of looking at book value and earnings related

to price I are all sub] e:ct to the. changirJg winds of chancel because we are really li'i.ring in a complex international worla~

Irving Fisher (i 867-1947)

Same have. caught a flicker of what I speak such as Irving Fisher ~ but they stopped shy of this trait6 Fi.sb:9: of course was a

... _.... . .. .. TJl€"-6tli.et·· tlioory· t:0" ·S0:i:Vi va· was ... that -"Of ... ... . .. famous·· ·econam __ st· dutlri~i me ., great··· de!?resslOti~·· ..

David Ricaulo and his CcI\lp=rrative Mvant:age. What made. him different, he was also a trader

This too would be slightly mo:1ified by the ana amassed a fortune from 1910 onward. He

overlay of a floating currency that would helped to pioneer the fields of capital theory

now effect the. international value of what and contributed greatly tr:mard the modern

was at issue in the ~tive Advantage.. theory of rron.etarism.

4

I am sure that when I am gone the.y will no doubt compare me to Irving Fisher for we both have had a "crusading spizf.t;" that led us into multiple fielas of study. Irving'

at least caught a glimpse of suspension in the gold standard insofar as war was concerned, He watched both World .war I and World War II, and between 1912 and 1935, he produced 331 documencs expounding his vision for the ucanpensated. dollar" that he saw as a new currency of ronstant purchasing p::mer. Sc:me viewed his ideas as a "OJiwolity dol Jar· rather than limiting the backing so-to-speak as exclusively gold. Irving proposed to thenu def~ the dollar in te.ons of a given value of gold. that floated according to an index

of corrm::xii ty prices of a specified set of gocds.

John Maynard Keynes (right) with Tmasur;y ~ Hen£y Morgenthau, Jr 1 944 (Bretton WOods)

Irving is also famous for his statement that the US stock market nearing its peak had made the CClflllIeOt that We reached a permsnerrt, plateau. This illustrated the problem with the concept of "value" and a "just price"

and that market behavior was sc:mehow rational ~

John Maynard Keynes rose to the top not because he did anyt:hin.g to forecast the high

or even the low-. What he did ~s generate a theory that government had the power to then nanage the econcmy and that led to the fact that govemment heard what it wanted to hear insofar as they were the salvatial. for all of rrankind. Keynes in many ways, justified the root premise. of Karl ~ that the state should be in control.

. During my 20s.,. I saw the world through different oolored ·glasses~ By my 30s,::1 was f i.1:mly entrenched in understanding the. true Global St:ructn:r:e. When I 'WaS 36, years of work was put together in the Greatest Bull Mill:ket In HIstom and that I wrote frcm my new global perspective thanks to clients I had around the world who helped roo see what I wuld have missed. So that book I wrote showing the Same market; often charted in a host of different currencies. What ! had come to realize., was that a bubble top like in NASI::>AQ in 2000 or the Nikkei in Japan back in 1989 or even 1929, eou'ld only be und.erstocrl fron a multi-currency view.. RE:!al bull markets of significance, criLy happen when the gains are reflected in all Ct.II;'1:"e{lCy values fran Europe to Asia. .

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-.---- .. - The vast majority of fundamental·analysis based upon the idea of efficient markets and just value, are all pretty much worthless for they will never explain an event in any time in advance, and evert with hindsight, we are less than satisfied with the explanations the emerge. There is 00 such thing as a Ujust priceu in. market theory ~ Markets are very effiCient, but ooly from an international perspective.

. When the 1 987 crash hi t., peopl.e cat.Isd their broker and asked. what the hell happened and why did the Dow Jones fall 500 !;Oints? The response was scary. III have no iaea! 11

'l'he truth of the rra tter was that all of the fundamentals were the. same. Nothing took place domestically other than the stupid idea of creating the G-S to rreni.pulate the dollar dQ'iom to create a tt'Ore CO£I"I);'eti ti ve work force and that would result in nore jobs anD. the lavering of the trade deficit. This was the brain-child of James Baker ~

This illustrates our problem. (1) There can be no efficient market; theory as related and preached by many analysts. That asaurnes

a closed economy and currency has no impact. That is just insane. Foreign buying is the concentration of capitaL It was the foreign buyers that drom the N""ASD.AQ up in 2000 as was the case for the Nikkei 225 in 1989. It is that external, capital that comes in and then makes all the difference. 'lhat is the global ~ta1 c.alCa1b;aticn.

(2) The efficient market theory also presumes no change in a:mfidence between the private and the public sectora, There is a flight to qualift:y that has nothing to do with a 1tjust pricen for Tntien confidence in government is high, stocks have traded well beloW their liquidation values T and then at times when confidence in government falls, stcck.s rise as a hedge against government as they did o:ming out of the 1932 low.

The theories that pretend to be able to predict whether the stockS will rise based upon earrti.n.gs T are. flawed from the. view that

. markets. always overshoot- &··nrdershoot .. -,so _n ... •• trying to predict what 'lshatiLd be" in a nice and t:erfect to.Urld, is just a. little utoptan for real value. We have to be realistic and avoid the pie-in- the-sky theories~

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What should happen, usually does oot , Markets are very efficient. However I to even underst.arrl that, we must grasp the idea that only the rise in prices and OPEC during the 1970 s , forced a response of creating solar energy, wind energy, and alternative :fuels.

AE; long as scmeth:ing like oil is cheap, there can be: 00 such tlring as eVen bothering to create anew solution that will be rrore expensive anyway~

It was the Great Depression that forced farmers to t:eoome skilled labor. In 1900, 40% of Americans were still farmers ~ By 1980 T that fell to 3%. So what we are. doing is responding to the. markets. In this sense, they drive all activity and from attcient times they were the driving force behind migrations. We may rot like the forced changes that are oompelled up::l!l us by the "free marketsTi but that is how they are efficient. Not in the sense of how the populare an.al ysis port.rays the theory.

In this sense , Newton r s laws of mOtion enter.. A force applied in one direction, will ccmpel and equal and OPt:08ite reaction. This princi.ple is true even within our economy.: We must respect that just as we can learn and grown individually~ society fails to gc~ate that collective sense of knowledge.. Hence, as individuals 1iJe retain free will to .participate in a boon and step out of the way for a bust based upon our individual knawledge. However, the state cannot advance because it is in

a perpetual phase of selfgrandiose visims

of supreme power.

The value. of anything is constantly changing because its true international value changes 00 a minute by mirnrte basis for its value is honestly reflected in a basket of global currencies _ Whether it will truly

rise is determined by that internatiooal value. To attract capital globally, it must rise in terms of all currencies.

So you see, 1Nhatever the theory that once was, is no nom. The floating exchange rate system has altered. everythingA Those theories are long gone and were based on a

one. :world currency such _as goldA. Once .that; .. __ . _ . _

vanished, we entered a ccrnpletely new era

and few- have. understood it dcrnestica11Y/ln

the US for they never look at the world

wearing different colored glasses for each nation.

~6=-- __

The DNA of the Global Econany

The true. hidden & vastly impressive Glct:lal structure to our, social-!;-'Oliticial-eoonanyr is marvalous.l y dynamic and a vibrant cr-eation of incredible order masked by a vail of true C'CllllPlexi ty ~ When I ~an my schooling in o:::mtpUter engineering, a o::ITlputer was still the . size of a roam that had been achieved wi th the invention of transistors that enabled it to be shrunk down frcm a football field using vacuum tubes, With the invention of integrated circuits, we had visions of now desktop a::::mputers. Nevertheless ~ my professor showed us the RCA Spectra 70. He then made it very clear that we had to know every aspect both hardware and software before you would pass , I look at this machine that wa s the size of a roon, and. thought he was nuts. There was no way one !;)Srson could understand all tlrls gear A For months I took my notes with little clue as to what the hell was going on, Then he put up on the board a simple· and--ac-c:ircuit that was basic simple magnets. Putting 8 in a row and charging them. either plus·or minllSI allowed one to store a letter or a number in binary code. All of a sudden

the hlaXt rushed in and at last I got it. A oomputer was just a ton of these things, with the various wiring to allow reading and lcoping A It was a simple core. structure over and over aga.-in .. · - . -.. .-- -- .

The Global S~ of the economy is the same thing ouf.Lt; upon self-interest, yet

;re. are staring at a machine that is so vast, we are intimidated 'Jy aiza,

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The core structure is OCIt unlike mm.. There is a coda by which torrorrow is detem.ined,

or if you will die frcm a ~troke because that is the curse of your family~

What exi.sts is a dual key structure of order. {1) is the Sixth Dilreltic.n I have defined as the inter-relationship of

all markets tied together with all eco.rx::nnies ~ This is filtered through currency, so to detertTlin! whether there will be a real bull market, depends if that is rising in all currencies ~ When the upward advance is purely

the locate currency, then we are dealing with a flight to quality trying to seek value from the declilling purchasing p?wer of the local currency. When it is rising in terms of all currency, then we. have a global capital ooncent.rat.ton, That is the stuff the real bull markets are made of.

(2) is the Sclela Frequency where the dynamic structure is ceded 'Wi thin sequences of vi. ta 1 -. patterns that repeat in strings like DNA and tl1l15 map the very future before we can see it. It was the 1 906 San Francisco earthquake that set in motion the creatdoa of the Federal Reserve~ It was the 1929 crash that set in rrotiOt:L the creation of the SE) and rrarked the transition from fanning to skilled Labor ~ Thls

. allowed America. to. be .. what .it __ ... became.' just as WWI & WWII made the US ri.ch as a arms dealer and provider of food, .

The future is coded in a sequence. That coda will have to

wait for my relea.se~