Knowledge is gained ONLY from making mistakes and surviving our own decisions

The Pursuit of Knowledge

Posted Jan 8, 2020 by Martin Armstrong

QUESTION: Hello Marty,
I am fascinated by Socrates as it has opened my mind to patterns in my own nature and the flow in life.
I’m fact, your economic models have open my awareness of the cycles in my life. As I have experienced support, resistance, reversals, phase transition and slingshots out of expanded consciousness. It really is amazing to see this in myself, others, societies and cultures.

Which leads to my question, have you ever been asked to apply and integrate your research with the research of Clare W Grave, specifically his Spiral Dynamics models of human and societal consciousness?

Your economic models are far superiority anything I have ever seen. Same goes for Spiral Dynamics for understanding why and how humans behavior manifests and emerges.
Like you I’m interested in advancing the world to a more sustainable future less driven by self interest and more driven by system’s thinking grounded in unbiased research that lets the data tell the story, rather than setting out to to confirm own perspectives and bias.

I believe your work will be recognized on a much more grand scale by future generations. You definitely are someone who exhibits the characteristics of Stage Yellow & Stage Turquoise thinker. You are rare and are ahead of your time.

Thank you for your work.
MLK

ANSWER: Clare W. Grave’s work in psychology concluded that the mature human being transitions from a current level of cultural existence based on current life conditions to a more complex level in response to (or to cope with) changes in existential reality. Graves’s model demonstrates the dual nature of human social emergence with state changes between communal/collective value systems (sacrifice self) and individualistic (express self) value systems.

I have not sought to integrate my work into his. You must understand that there are a few of us who have learned how humans behave through trading markets. I never considered that what I was writing or doing had any validity or significance in psychology or economics for that matter. It was during the early 1980s when many people began to take notice of what I was doing because I emerged as the leading analyst in foreign exchange in a new world of floating exchange rates.

I was contacted by the Military University known as the Citadel. I was asked for permission to teach the Economic Confidence Model as the key to understanding the economy and war. They told me I was the modern Hegel, which was perhaps the first time I was being compared to any philosopher. Hegelianism is the main philosophy of G. W. F. Hegel (1770–1831) who was also a major influence of Karl Marx and revolutionary movements during the 19th century. Hegel’s philosophy has been summed up by the dictum that “the rational alone is real,” which means that all reality is capable of being expressed in rational categories. His goal was to reduce reality to a more synthetic unity within the system of absolute idealism.

I was then rather shocked when a rather famous central banker called and wanted to meet with me back in the early 1980s. John Exter (1910–2006) was an American economist, member of the Board of Governors of the United States Federal Reserve System, and founder of the Central Bank of Sri Lanka. I still have the tape from our meeting which we recorded. He was the first central banker who actually came to my office (Part I of three).

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Then I was giving a lecture in Chicago on COMPUTRAC or Market Technicians. Milton Friedman came there to listen to me. When I was finished, he came up and introduced himself and said I was doing what he had only dreamed about when he first wrote about creating a floating exchange rate system in 1953. We became friends after that meeting.

When it came time to create the G5 in 1985, I was asked for my opinion. I was opposed to the manipulation of the dollar by announcing it would be lowered by 40% under the pretense that would reduce the trade deficit and create jobs. I expressed my objection to President Reagan and the White House was compelled to respond.

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By the 1987 Crash, then the Presidential Task Force, known as the Brady Commission, was compelled to call me in because we ended up with a few clients on the Commission who insisted I be brought in because we had not only forecast the event due to foreign exchange, but that the day of the low we also said that was the low and new highs would be seen by 1989. When the 1989 Japanese Crash took place, I had two central banks on the phone simultaneously asking if they needed to intervene into the foreign exchange markets to stem it from spreading into a global contagion. I advised it was contained to Japan and they did not need to intervene.

Because I became a forecaster of foreign exchange and helped companies do takeovers and reorganized them as to what countries to set up in, former Prime Minister Margaret Thatcher wanted to meet the guy who was restructuring companies and placing so much foreign business into Britain. We too became friends and she even spoke at our World Economic Conference.

When the British pound was being attacked by Soros, the administration of John Major called and asked how long was the attack of the pound going to last? I advised that they had to devalue the pound. I was told they could not because Prime Minister John Major said he would not devalue the pound and the goal was to join the euro. This became the ERM Crisis. My advice was to exit the ERM and allow the pound to seek its own level.

In 1997, I warned Treasurer Robert Rubin against trying to talk down the dollar for trade as they attempted back in 1987. Again, while I managed to to get them to stop that nonsense, the capital flows had nonetheless shifted from Asia back to Europe to get on board for the coming euro. This resulted in me being called in by the central bank of China as a result of the 1997 Asian Currency Crisis.

I have never sought to correlate my work with any others. I have been a trader, not an academic. I have been called the modern Hegel and compared to many others in philosophy as well as psychology. Because the floating exchange rate system was born out of necessity in 1971 as the Bretton Woods system was collapsing, I was often the only voice to be heard who actually had hands-on experience worldwide. When I was asked to testify before Congress in 1996, I was the largest adviser in the world with just over $3 trillion under contract which at that time was about 50% of the entire US national debt. No one had ever had such a role in world foreign exchange markets. I was fortunate to have a front row seat during the entire evolution of the floating exchange rate system. That was never a subject that could be taught in university since the last such floating exchange rate period predated the first course in economics which began at Cambridge University in 1902.

I have been trained, not by some university which could never teach anything to do with the Floating Exchange Rate System, but by the markets and my clients. The person who came up with the very concept of supply and demand was also a trader who had been in the trading room of Amsterdam — the first trading center post Dark Age. His name was John Law (1671-1729), who was also plagiarized by just about everyone else.

Some things can only be discovered by actually observing them from the trading floor. They do not appear out of thin air from a dream. What I learned about the world economy involving foreign exchange and observing capital flows between nations and currencies could only be accomplished by life experience. Likewise, John Law observed the basic human reactions and formed his idea of supply and demand with its impact upon price.

A trader does not have the luxury of clinging to old theories. If you are wrong, you must respond quickly. Knowledge is gained ONLY from making mistakes and surviving our own decisions.

Our Journey Through Life

Posted Jul 19, 2018 by Martin Armstrong

QUESTION:  Hello Martin. Over the years I have read so much of your adventurers (if you could call them that =) and some of the great masters you
quote from time to time.

I know you have done a massive amount of research on your own. I was wondering about some of the unknown people in your early days. Like when you first started programming on wall street. People who shared things with you that gave incite… or steered you in the right directions knowledge wise. People who keyed you in on trading, markets and so forth.

It would be interesting to hear if you could share.

Alright, Nice evening to you sir.

N

ANSWER:  Life is a math equation. Life = Sum(x + y + z). Everything we do accumulates and the sum forges our character-defining who we are. Experience = knowledge. Nobody is ever born knowing everything. We learn ONLY from our mistakes so cherish them well for they are what make us who we are. When there is nothing left to learn about this world, then it is time to leave. Never be afraid to question for unless we have questions, we will never arrive at answers.

People often ask me why I am not bitter for the injustices I have fought against in New York. They have been absorbed and contribute to my understanding of life. In our natural habitat, we tend to judge others by ourselves. We need to be confronted by the opposite to understand its very nature. I have seen the corruption of the Judicial system from the inside out and am so glad I did not become a lawyer as my father wanted. You learn that there are truly evil people who know what they do is wrong, so they try to oppress and even kill those who would expose them. They deny all wrong-doing and pretend to be so upright, but someone who really is upright never pretends to be because they do not have to. The fact that they must act in this manner demonstrates that they themselves know they are evil or they would stand in the light of day. Just mind-blowing how people can act so corruptly and then sleep at night. There was one kid they were charging with conspiracy for murder because someone asked him where a person was he pointed to him and they killed him. The wanted the death penalty. The prosecutor refused because the kid had no priors and was 23. He quit and the next prosecutor had no problem trying to kill this kid for a conspiracy all because they wanted to win the first death penalty case in New York City regardless of who it was they would kill. Some of the evilest people in the world go to the Justice Department.

My father pushed me into computers because I was probably a natural trader which he disapproved of and I decided I did not want to become a lawyer. I was also not motivated by the education system. I suppose I began to see that those teaching did not have actual experience in what they taught. The ancient Romans had the best school system. You have the basic reading, writing, math, as well as history. However, you would decide what you wanted to do in life and left what would be called grade school to seek an apprenticeship. My father was going to take us to Europe for the summer, I believe, in 1964. I wanted to earn some money for myself and got a job in a coin/bullion store. Yes, you could buy gold before 1975 in coin form. There were countries who produced restrikes to be able to sell gold. Hungary issued coins data 1908 and Mexico kept the date 1947 on 50 pesos. Gold coins were legal for “collectors” as long as they were dated 1947 or earlier.

That was my apprenticeship for I began to see markets and observed the daily fluctuations. Silver was rising in price and President Kenney signed in 1963 the Executive Order 11110 on June 4th, 1963 to remove silver from the coins starting in 1965 before he was assassinated. Just about every country soon followed by 1965-1966. They two years later is when Bretton Woods began to crack in 1968 and a two-tier market in gold began – private and official. Gold begab to trade in London. It didn’t trade in the USA until 1975.

Going to Europe, we traveled the entire summer driving from Sweden down to Naples to visit Pompeii. I became the navigator but it also was a quick introduction to foreign exchange. We would have to exchange money at each border. I have a few 1964 Kennedy half-dollars. Whenever I would pull one out, whatever the bill was if $10 to $25, they just wanted that coin instead. It taught me early lessons about arbitrage. I remember telling my father we should have come to Europe with a bag of them and we would have paid for everything.

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Every door we open in life leads to another. I have never been one to be afraid of trying something new. Failure is how we learn and success is our reward. Had I not gotten a job in that coin store where I bought my first Roman coin for $10, I would not be here today writing this. That is what I mean that we are the sum of our experiences. I was in history class and the high school professor brought in an old film The Toast of New York. It was a film about the Panic of 1869 and the attempt of Jim Fisk to corner the gold market. In this clip, you will see what sparked my imagination and sense of curiosity given my exposure to reality by working. Jim Fisk is at the ticker-tape, and he then turns to his girlfriend and quotes gold at $162. Now I knew from working that gold was $35. Suddenly, I was confronted with an anomaly. I was being taught that everything was linear. So how was it possible that gold could be $162 in 1869 and $35 today in the 1960s?

At first, I assumed it was just a movie. But it bothered me. There was a QUESTION in the back of my mind that would not be answered. I went to the library and looked up the price of gold in the microfilm copies of The New York Times. There it was, the quote, $162. It was real. It profoundly shook my belief system to the very foundation.

Countless questions were running around my mind like a pack of wild animals being chased. I began to ask questions in economics class. The answer was even more disturbing. Well, there was this thing that they once called the business cycle, but the government has eradicated that I was told.  It was a real bull market in everything going into 1966. Rare coins peaked. I remember an 1877 Indian Head Penny was sold for $700. It crashed by 50% in months and never saw that price again for at least a decade. Pennies were the hot thing back then. I was buying and selling and it taught me how to trade. I made so much money my father convinced me to invest in mutual funds. I did, and then the stock market collapsed and the mutual fund dropped from $54 to about $5. I asked my father if this was the way conservative people made money? My speculating in commodities was much more profitable than stocks I knew nothing about at that time.

I began to notice that there were certain things that were hot and others that were cold. The pennies were soaring but not ancient coins or many other denominations of American coins. Collectibles market crashed with the 1966 stock market crash as did mutual funds. The Crash of 1966 was followed by another in 1968 when the two-tier market in gold began with the crack in Britton Woods. The real estate crashed in 1970 as well. But even more confounding, gold actually fell BELOW$35 in 1970 – the old Bretton Woods fixed rate that everyone assume would hold.

There was no mentor back then. You had to learn from observation. Bretton Woods was collapsing and nobody knew what would even happen no less forecast what would come by 1971. I was finished with high school, but the nagging questions only multiplied. Clearly, there was some sort of a cycle. It did not matter if it was stocks, bonds, coins, collectibles, foreign exchange, or real estate. It was obvious that everything went through the same boom and bust cycle.

I was doing my own research now in the Firestone Library at Princeton University. I was searching old newspapers, looking for previous prices of booms and busts that I had been confronted with in gold. That’s when I stumbled upon an article that listed previous panics between 1683 and 1907. This was an old article published even before the 1929 Great Depression. That is why the list stopped with 1907. It was even pre-World War I.

That’s when I also stumbled upon this illustration of a business cycle published on February 2nd, 1932 in The Wall Street Journal. I took the list I found that covered a span of 224 years and I divided it by the 26 events which yielded the 8.6-year average. I began to test through history which I knew well. The rest is history itself as they say (see wave structure). So no, there was nobody to talk to back then. You had to learn everything on your own. It was not until the Crash of 1974 that Paul Volcker was inspired to call it “The Rediscovery of the Business Cycle” because they did not even teach the existence of such a cycle. It was supposed to have been conquered by the government with Keynesianism. It was an age of rediscovery indeed. There was no place to go. Gold futures began in 1975, bonds 1977 and S&P 500 futures in 1985. There were no trading clubs. I was on my own.