Texts of General Interest (link)
Dr. James Manos (M.D.)
February 26, 2022
Can we predict the financial future?
The economic confidence model
Image (public domain): German States Fugger 1621 10 Ducats Uploaded by the user Keeleysam. Date: 1621 (coin), 2010 (image) Source: National Numismatic Collection, National Museum of American History. Author: Fugger Family, County of Kirchberg and Weissenhorn, German States (coin), National Numismatic Collection (image)Wikipedia. Link: https://en.wikipedia.org/wiki/File:German_States_Fugger_1621_10_Ducats.jpg
You may watch the relevant videos at https://www.youtube.com/playlist?list=PLiPVbMWg0XBV3RZqddlgaqDVkGaqB-YzR
The economist ''forecaster''
Martin Armstrong is the founder of ''Armstrong Economics'' and former Chairman of ''Princeton Economics.'' He invented an 'Economic Confidence Model' used for decades to predict events. He is the only one who predicted Brexit, i.e., the exit of the UK from the European Union (EU) on the referendum of June 23, 2016. He was sure about the decision of the Britons six months before.
The economic confidence models
The method that Armstrong invented considers the financial trends in the stock market related to selling and buying shares. He also takes into account the history of how the stock market transactions preceded historical events of a financial crisis and political turmoil in the past. That means that knowledge of history is vital to interpreting the formula. Armstrong used his method to forecast the near future economic events.
The 'economic confidence model' is an economic cycle theory of Armstrong. This model proposes that economic waves occur every 8.6 years or 3,141 days between crises. At the end of each cycle, a crisis follows an economic improvement until the next 8.6–year crisis point. A monetary crisis may follow or be followed by catastrophic events such as wars, famine, pandemics, political turmoil, etc. So, a monetary crisis is a socioeconomic crisis.
Armstrong's predictions are based on movements in buying and selling shares on the international stock markets, indicating an impending economic crisis. These trends may be extremely subtle. However, his formula assesses even the most minor trends. He detected those transactions in the global stock market that may pass unnoticed, whereas they precede an economic crisis.
The ''Brexit'' case
According to Armstrong, when companies or speculators buy or sell shares, this may indicate an impending economic crisis. For instance, shortly before the referendum in the UK to decide on Brexit, the Hungarian-American investor George Soros bet one hundred million euros on the decline in the shares of Deutsche Bank. The brokerage firm Soros Fund Management LLC sold about seven million previously borrowed shares. Soros warned that Brexit will ultimately doom the British economy. After Brexit, Soros betting against Deutsche Bank caused a 23 percent loss in its stock value. He eventually won almost one hundred million euros (about 113 million dollars).
In 1992 Soros brought the economy of the UK to its knees. He is known as "The Man Who Broke the Bank of England" because of his short sale of ten billion dollars worth of pound sterling, making him a profit of 1 billion dollars during the 1992 "Black Wednesday UK currency crisis." Soros founded the Soros Foundation in 1984, initially to fight communism. In 1991 in the US, he founded the Open Society Foundation (OSF), which supported human rights, including the rights of migrants.
Assessing the economic transaction of Soros that bet to Brexit, mentioned above, formulas such as Armstrong's could suspect the decision of Brexit to be 'yes,' and the financial repercussions that will follow Brexit. Formulas such as Armstrong's could predict the outcome of Brexit. However, in real life, and not just the theory of formulas, things are more complicated, and the accuracy of this formula should be proven statistically.
Breaking the law
Armstrong's formula and his novel ideas caused him legal problems. In 1985 he was accused of misrepresenting hypothetical performance results and omitting a required disclaimer in an advertisement. In 1999, he was charged with collecting money from Japanese investors, improperly blending these funds with funds from other investors, and using cash to cover losses he had incurred while trading. Additionally, in 1999 he was charged with turning over $15 million in gold bars and antiquities bought with the fund's money.
He was jailed for seven years under contempt of court for the last accusation until federal prosecutors reached a plea agreement. Armstrong, in the 2014 documentary film 'The Forecaster' claimed that the previous conviction from the court was set up by the US government. But he did not give evidence of this. In 1977 Armstrong successfully predicted an upturn in the price of commodities. Armstrong's forecast of an imminent Russian economic collapse in 1998 was also successful. As mentioned above, he also predicted Brexit. However, other predictions were not accurate and failed.
Epilogue
Everything considered, Armstrong, who now works as a financial advisor, invented an algorithm. He alleged that it successfully predicted the economic future. However, only some of his various predictions were accurate. In addition to his algorithm, several other similar formulas related to "economic confidence models" have been developed to predict the financial outcome.
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