Russia trade which took down Long-Term Capital Management

The Club & Why the Majority Must be Always Wrong

Posted Sep 6, 2019 by Martin Armstrong

QUESTION: Mr. Armstrong; I did my own research on the 1998 Russian collapse. All the big names lost billions. Even the New York Times reported that George Soros lost $2 billion. You were the only one who made money so it made sense that you were named hedge fund manager of the year in 1998. My question is this. Since all the big names were involved in the Russia trade which took down Long-Term Capital Management, is this why you call them the “club” for they all do seem to be involved in the same trade?

DU

ANSWER: Correct. This is also why they try to prevent people from listening to me. They are convinced that the reason they lost was that I was too influential and had too many institutions listening to me. That absurdity is what they ran to the government with, so I was then accused of “manipulating” the world economy. They all lost after I warned them and refused to join in their takeover of Russia I believe I was given the nod by the Clintons. They told me they had the IMF in their back pocket and they would continue to fund Russia. I warned them that the IMF got their funding from governments and they were not going to back it.

The Russian financial crisis hit Russia on the 17th of August 1998. Our World Economic Conference was held in London that June. Our forecast was then published by the London Financial Times on the front page of the second section.

They did not give up. After they got the Federal Reserve to bail them out, they then focused on setting up Yeltsin and got him to divert $7 billion in IMF loans. Even CNN reported the money was stolen from the IMF.

CNN Theft of IMF Money – Sep. 1, 1999

Edmond Safra’s Republic National Bank ran to the Department of Justice and then reported that a $7 billion money laundering scheme just went through Bank of New York. They attempted to blackmail Yeltsin to step down and appoint their guy; Yeltsin then turned to Putin. It was the US bankers, with the support of the Clintons, who first tried to interfere into Russian elections. This is why Putin was not friendly to Clinton and said Mueller could come to question anyone in Russia he liked, provided Russia could question Americans including Bill Browder who was Safra’s partner in Hermitage Capital.

While “The Forecaster” was shown even on TV throughout Europe, Canada, and Asia, the question is WHY was it banned in the United States? If it was just a conspiracy theory, they could care less. When something strikes closer to home, they ban it.

When Genius Failed

Why do Most Computer Models Fail?

Posted on May 11, 2015 by Martin Armstrong

Computer Models typically fail for the same reason why human forecasting from a gut personal perspective becomes a joke. In both cases, if there is no experience with the past, neither can possibly forecast the future. Such models have failed because they lack the historical database on a global scale. How is it possible to create a model that only goes back to 1971 where free data is available? What will happen is catastrophic. It will work for the period that everything is normal, but it cannot predict the major events like the Great Depression and Sovereign Debt Defaults for it has never seen such events in the data.

The models that resulted in the collapse of Russian bond debacle in the Long Term Capital Management in 1998 were created by brilliant men who had no trading experience. The book,When Genius Failed, went into the arrogance of the firm and the era. Long-Term’s partners relied upon what they though was the magic formula that could predict markets. Their arrogance in mathematical certainties created a new age culture of Wall Street that set the stage for its collapse, yet it has still not quite gone away. This arrogance remains and it has contributed to both the rise and the fall of Wall Street in search of the Perfect Trade.

When Long Term Capital Management (LTCM) was founded in 1993, it was touted as the most impressive hedge fund in history. Its mathematical models were blessed even by the Nobel Prize much like Obama was handed the Nobel Peace Prize simply for being the first black president. Yet in just 4.3 years, the wave of the ECM 1994.25 to 1998.55 had dazzled Wall Street as a $100 billion moneymaking juggernaut, I was personally told to join the “club” for with these mathematical models and Nobel Prize winning players combined with rigging the game and paying bribes to politicians, it was the Perfect Trade in Russia. I told them our model said it would collapse where their’s said the party would never end.

Long-Term Capital Management suddenly suffered catastrophic losses that jeopardized not only the biggest banks on Wall Street but the stability of the financial system itself. This resulted in the Federal Reserve, without any authority, bailing out a hedge fund for they would have taken down the high-flying banks who all bet on this Perfect Trade.

The dramatic story of Long-Term Capital Management’s fall illustrated that the Federal Reserve could have saved both Bear Stearns and Lehman Brothers but this was Wall Street’s payback. Bear refused to contribute money to bailout LTCM because they were not involved. Goldman Sachs’ Hank Paulson let them go because I believe they were competitors to Goldman and he wanted to steal their clients. There was plenty of precedent to bailout LTCM which was not a bank, so Paulson’s excuse was nonsense since the next day he rushed to bailout AIG that owed Goldman a fortune. Bush, in my opinion, was a fool manipulated by the people around him with their own personal agendas.

 So the Black & Scholes Models failed for it lacked the historical depth to back-test the model under all conditions. This is why we spent so much money on creating a database all the way back. Even the model used for the CDOs, failed. David X. Li, the Canadian math wiz was blamed for that failure.

In truth, many people have tried to copy what we have accomplished tying together the fact we have used physics and then assume they can bring in math guys to create something they have no trading experience in doing. That has proven to be a wild ride to say the very least. It is the database that makes forecasting possible.

To put together this chart would cost over $100 million today. It was a major research project that was necessary to predict the future. The burning question was HOW DO EMPIRES FALL? Was it like a 747 plane coming down gradually for a landing, or was it a collapse out of the blue? If you do not spend this money, you cannot possibly predict how society will perform.

The 8.6 year frequency has been back-tested into ancient times. The discovery has been that amazingly it is part of everything that spans the centuries. This was like discovering the earth was round and not flat. Of course people will refuse to believe there is a business cycle and that cannot imagine that they will be compelled to act. What they fail to grasp is that the business cycle has always existed for it is partly influenced by nature, not just mankind.

There were people who refused to believe the earth was round for to them you would surely fall off if you were standing upside down. That was Issac Newton who had to discover gravity to explain that one. Today, there are people who cannot believe that something in the business cycle would be so precise. To comprehend what is going on and why, may take yet another discovery along the lines of gravity.

The database is the key. Without spending the money, you cannot even form the correct question. Hence, this is not been my theory of how the world should work, it has been my discovery of how it works and what remains not is to figure out why.