The Armstrong Affair

The following is a statement issued this week by the Princeton Economic Institute, which defends the recently arrested financial analyst Martin Armstrong. The PEI statement is followed by a reply dispatched therefter by GATA Chairman Bill Murphy.

Since I corresponded with Armstrong a few months ago on behalf of GATA and since that correspondence has been quoted since his indictment, I will take the liberty of a making a few observations here.

The statement by the Princeton Economic Institute accuses GATA of "outright slander" of Armstrong for GATA's suggestion that his operations were short gold.

But that suggestion was made only after his indictment, and only after a statement by the Commodities Futures Trading Commission that Armstrong's operations had positions in the precious metals markets. Since Armstrong had predicted publicly and to GATA that the price of gold would fall to $200 before rising, any error on GATA's part here would be only that of taking Armstrong at his word.

If there is any serious dispute about Armstrong's positions in the precious metals markets, it can be quickly resolved by disclosure of the books of his operations. I would be surprised if Armstrong's operations want to carry the matter that far, but we try to be decent people here and we will make corrections forthrightly and graciously when we are shown to be in error.

Secondly, the PEI statement accuses GATA of blaming Armstrong for the bear market in gold. We never did that. PEI confuses us with others.

I know that other adherents of the gold cause HAVE blamed Armstrong for the decline in the price of gold, because of his widely distributed analysis. Indeed, prior to his recent troubles I saw attacks on Armstrong that were personally abusive and even scary. Some of those attacks were turned against GATA when I engaged Armstrong in a cordial correspondence and published some of that correspondence here. Yes, some adherents of gold seem to have considered Armstrong the Antichrist.

As for me, I never had to make such a judgment and I continue to reserve judgment on him. Oh, I know what the federal indictment against him says, and I will watch the legal proceedings with great interest. But I would remind people that the defense he appears to plan -- that his trading losses were honest and that he really was not operating the Ponzi scheme that has been alleged -- is plausible prior to any examination of the evidence. And Armstrong doesn't have to prove his innocence; the government has to prove his guilt.

Further, I would be sorry for anyone's honest losses, having incurred plenty of my own as an advocate of gold. In any case all I really do know is that Armstrong was cordial and decent to me, and I was the same to him in return.

Much is being made of Armstrong's lack of formal academic credentials. I don't know whether his economic forecasts generally have been as good or as bad as has been claimed, but I know from experience that the most credentialed people and the people most obsessed with credentials are often the least competent, and having no college degree myself, I can't help but believe that there are other ways of getting educated.

GATA is after the truth and seeks justice, not the destruction of individuals. Prior to his indictment, Martin Armstrong was simply someone of renown with whom we had agreed to disagree about some things.

While GATA does not advocate a gold standard, we believe that gold's traditional monetary function as a measure of national currencies and as a competitive form of money is crucial to economic justice everywhere.

It is amazing to me that only eight months after its formation GATA has become the target of some entities more powerful than we can imagine. I believe that this is because the gold industry is demoralized, because leadership of the gold cause has defaulted to us, because we carry its flag proudly, and, most of all, of course, because we are right.

In a recent essay Armstrong disparaged GATA as a "two-man army." In fact GATA has three officers and several hundred active supporters. But even so we can be perceived as such a threat to the established order only if we may be right and only if justice really may be on our side. If so, then with Martin Armstrong and with everything else here....

Fiat iustitia et ruant coeli.

That is: Let justice be done though the heavens fall.

CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.

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Statement of
Princeton Economic Institute
September 20, 1999

The Princeton Economic Institute is an independent research organization and is not owned by Martin Armstrong, nor is Mr. Armstrong a director of the Institute. It is NOT related to Princeton Global Management or part of Princeton Economics International, nor does it engage in the management of any funds.

Our daily forecasting reports, Global Market Watch, and system models used at Princeton Economic Institute are independent models that are not the product of any single analyst. It is our intent to continue to publish our research and bring an independent and objective information to our many loyal clients around the world.

While Mr. Armstrong has always been an outspoken opponent of government manipulations, interventions, and "the billionaires' club," his direct warnings about the political corruption in Japan and the billions of dollars in hidden losses within its financial system, in some cases carried out by ex-MOF officials, have put him in the direct line of fire by the Japanese government as the man they most wish to discredit. No doubt his highly critical stand against the accounting systems used by all governments that distort CPI, GDP, trade statistics, poverty statistics, and taxation have not made him very popular in some circles. His outspoken warnings about the failure of the Euro have also created a few enemies. Mr. Armstrong has always been aware that his research has made him a target over the years; nevertheless he has always stood his ground.

Mr. Armstrong's involvement as an activist in governmental reform is well documented, particularly in the field of global tax reform and its impact upon the economy. He stood by his convictions against the birth of the G5 back in 1985. When his Economic Confidence Model pinpointed the precise day for the low during the crash of 1987, he stood alone calling for new highs into 1989. His research was even requested by the Brady Commission, charged with investigating the incident, and some of our clients were on the commission itself.

He became famous in Japan when his model also projected the high for the Nikkei in 1989 and he boldly warned that the market would collapse by 20,000 points within 10 months. His research forewarned of the bull market in U.S. and European equities in 1994, calling for the Dow to reach 6,000 by 1996 and later 10,000 by 1998. His research warned of the Asian crisis in 1997 and of course his model was able to project the collapse of Russia, which made headlines in the London Financial Times. His warning that the Euro would fail made him an enemy to some political groups in Europe. Of course, when the very same model that pinpointed the 1987 Crash, Tokyo Crash, and the birth of the bull market in equities also gave July 20 as an important major top last year, the validity of more than 20 years of his model became undeniable.

As staff members here can attest, even the CIA approached this office requesting that Mr. Armstrong assist the government in duplicating his model just last October, but he refused offering advisory services, insisting that the model remain proprietary.

Mr. Armstrong was invited to China by the government, where the Chinese made a similar proposal to obtain his model following his successful forecast of the Asian Crisis in 1997. Even after a visit to Princeton in 1998 by a representative of China, Mr. Armstrong still refused to cooperate with the Chinese, insisting that the model remain proprietary.

Even the Gold Bugs have tried to join in on the issue, claiming that there is a huge short position in gold of 20,000 ounces and that the demise of Mr. Armstrong will now lead to a bull market. Once again, there is no huge short position by anyone, and this is another example of outright slander by GATA in a futile attempt to blame Mr. Armstrong for the bear market in gold simply because of his warnings of coming central bank and IMF sales more than one year ahead of the general media.

Mr. Armstrong's warning that gold would decline has generated even personal threats sent to this office by some crazy Gold Bugs. There are many who have a vested interest in trying to discredit Mr. Armstrong, including one financial institution, in particular, which stands a lot to gain. They may all try to kill the messenger, but they will not change the forecasts he has made for the future.

Mr. Armstrong flatly denies the allegations made against him and he intends to vigorously defend himself. His attorney has stated publicly that he is being made a "scapegoat," but the media prefers to print the propaganda handed directly to them by his opponents. The Japanese press is blaming all foreign firms for the demise of the Japanese financial system and even the FSA has publicly stated that they will investigate all foreign firms in Japan with a new nationalistic zeal after the Credit Suisse affair.

If Mr. Armstrong is misquoted by the media in any response he would make, it can be used against him by the government. This is why his legal advisers insist upon his silence until he is heard in a court of law. Any similarity to the Credit Suisse situation has been totally ignored by the Western media and they prefer to try to discredit Mr. Armstrong's research of the past 20 years.

At no time has Mr. Armstrong ever misrepresented his background, as confirmed by Mark Pittman of Bloomberg in his article of September 14. Pittman interviewed Mr. Armstrong two years ago for Bloomberg. After all, Keynes, Ricardo, and even Adam Smith became important contributors to economics without any formal degree in the subject, relying instead upon unbiased experience and observation.

The staff of Princeton Economic Institute greatly appreciate the numerous responses of support, the gifts sent to the staff to cheer them up, and those who have come forward offering even financial support to insure the long-term survival of this operation. We will keep our clients updated as to any developments in the near future, and the staff here will do its best to keep the flame of free speech and objectivity alive. It is not an easy task.

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Reply by Bill Murphy
Chairman, Gold Anti-Trust Action Committee Inc.

What is Going On Here?

Do any of you find it particularly odd that two recent and notorious financial disasters have taken the time to take on GATA about what we have had to say about the gold market?

First, Eric R. Rosenfeld, a partner in Long-Term Capital Management, which had to be bailed out by various financial institutions through the orchestration of the New York Federal Reserve, sends an affidavit to GATA. Rosenfeld said, "I submit this affidavit in response to the allegations of Bill Murphy, chairman of the Gold Anti-Trust Action Committee, that Long-Term Capital Management L.P or any fund managed by LTCM or any affiliate thereof, including without limitation, Long-Term Capital Portfolio L.P., was involved in the manipulation of the gold market."

I wrote a letter back to LTCM's attorney, James G. Rickards, Esq, to ask him to elucidate just one instance where GATA indicated that LTCM was part of the manipulation of the gold market. Rickards since has departed from LTCM without ever responding to me.

The bottom line is that we never suggested that LTCM "manipulated the gold market." We and countless others just surmised that half of Wall Street had heard that LTCM had borrowed about 300 tonnes of gold and was using the proceeds for investment purposes.

Now another financial fiasco: the Martin Armstrong/Cresvale International Ltd./ Princeton Global Management/Republic Securities ordeal.

Princeton Economics International, the home-based research arm of this operation (I guess), continues to take on GATA. I suppose this is so because I intimated in commentary at www.lemetropolecafe.com that we have heard from the best of sources that Armstrong's operations may be short or may have borrowed up to 746 tonnes of gold.

PEI has the nerve to come out attacking us today in this press release when Armstrong is the one who did the attacking by publishing a essay on June 10, 1999, called "Gold: Manipulation or Exaggeration?" This commentary was circulated all over the world and this is how it started out:

"A two-man army calling itself GATA has begun to besiege the media, attempting to gain a lot of press on the platform that gold is being `manipulated' by a cartel of investment banks. They constantly point to what they call the huge `carry trade' in gold, where there is far more gold sold than exists."

It would appear that a front-page story Sunday in the business section of the London Telegraph by Economics Editor Bill Jamieson has the PEI people in a tizzy. Here is one quote from the story: "Armstrong had so many fooled. He came across as Mr. Academia."

In that story Armstrong is quoted from a letter he wrote to GATA Secretary Chris Powell: "I hate to tell you, but gold will drop to under $200 until it turns -- and I do not want to hear how I am short or some nonsense to try to discredit my views, because it is not true."

OK, Martin.

Now let us go to the videotape or, even better, to this Bridge News article of Sept. 14, 1999:

"The Commodity Futures Trading Commission said financier Martin Armstrong, who is accused of defrauding Japanese investors out of about $1 billion, had a variety of futures positions including yen, crude oil, and precious metals. However, Daniel Nathan, deputy director of the CFTC's division of enforcement, declined to quantify these positions or losses.

"While market players have speculated that Armstrong and his companies, Princeton Economics International and its subsidiary Princeton Global Management, had maintained large positions in gold and silver, Nathan would not provide any specifics on Armstrong's precious metals trading activities.

"Rumors started to circulate today in the precious metals trading community that Armstrong has been liquidating short positions in both gold and silver futures. However, the freezing of the accounts would prevent any activity from taking place, Nathan noted. On Monday the court appointed a temporary receiver with the power to take possession of assets and property and records of PEI and PGM."

Armstrong stated categorically to GATA he was not short gold. This statement by the CFTC strongly suggests otherwise. If Armstrong traded his PEI pontifications, he was short oil, short yen, long bonds, and short gold. The only winner this year was the short gold position. Yet while proclaiming to the world that the price of gold was going to $200, he then denied he was not short the only one of the four previously mentioned trades he was right about.

I could go on forever, but I think you all get the point. This strains credulity.

So that bring us back to why the two biggest financial disasters in memory have gone out of their way to deny being short one of the few good trades they had on their books to a "mouse" like GATA.

I suggest to you that it is because....

THEY ARE STILL SHORT.

Or the people responsible for them now are short in their behalf.

You have heard me say this before, so I will ouch on this only briefly tonight. The shorts are in big trouble. They had no idea of how bad it was going to get for them. They had no idea of how big the supply/demand deficit was. They had no idea of how big the gold loans were.

NOW they have an idea and they know they have a tiger by the tail. That is why they are manipulating the market. They are scared to death. That is why the lease rates won't go down -- the one-month lease rate was 4.3 percent today.

They are all running around saying the open interest on Comex is going up (almost 210,00 contacts) and the lease rates are high because everyone wants to borrow gold to sell it. Yet no one says why they so much want to do so, nor does it make sense.

Why is everyone so excited about selling $255 gold at 4.3 percent interest rates with oil headed for $25 per barrel, commodity prices rising, and bond yields rising everywhere? And we are headed into potential Y2K disturbances with potential liquidity problems. On top of all that, physical demand for gold is at record levels and the bullion dealers tell you how tight the physical market really is. So why drool over borrowing gold at high gold lease rates and entail all that risk?

The gold cartel is a desperate lot and they are feeding out garbage to the press and to the public. That is what they feed you -- disinformation. I am hearing that there is so much demand for gold around $253.50 (much of it coming from India) that the bears are actually afraid for the price of gold going down because it will exacerbate the physical gold tightness problem.

This is has been a nightmare for us. Soon it will be a nightmare for THEM. The gold and silver markets are going to rock and roll. It is only a matter of time now before the REAL GOLD MARKET is exposed. Then a "Hannibal Cannibal" will panic and run for the hills. That will be the beginning of the end for the gold market manipulation crowd.

These characters will have no more time to lob salvos at GATA. They will be too frantic and busy trying to find a way to cover their shorts.