Martin Armstrong’s latest letter-May 15, 2009

Summary of Martin Armstrong’s latest letter of May 15, 2009, “Understanding the Real Economy”.

To read Martin Armstrong’s latest May 15, 2009 letter with his predictions. Click here. It is a lengthy essay on Pi cycles (which is very educational) with the short term Market Outlook on pages 23-29.

His most recent letter is a continued education in the study of cycles, particularly the Economic Confidence Model Cycle, developed by Mr. Armstrong.

The Economic Confidence Model was developed to take into account the panics of the world economy, not to predict one market segment. Mr. Armstrong compares economics to physics in that it appears random, but it is governed by certain laws and patterns.

For instance in the early 1980’s, Martin suggested by his cycle formula, the DOW would rise to 6,000. At the time, the DOW was having a time breaking 1,000. He identified that after 51.6 year cycle hit around 1985 and change from the Public wave to the Private wave. People accused Martin of starting the “take-over boom” in the 80’s. He states that the “boom” would have happen even if he had not opened his mouth.

Martin Armstrong describes the 51.6 year cycle that alternates between public and private aspects. We are currently in a long private wave that will continue past 2032.

Another layer of the “Pi Cycle” is the 8.6 year wave cycle. It recently peaked on 2-26-07. It began in 2002 and continues on to 2011. Check out the article for specific dates and peaks and valleys of this cycle. Since this is an economic cycle and not a market specific cycle, you cannot necessary time the DOW or the SP500, as most would LOVE to do. You can however, time general market conditions, like will the dollar go up or down from this point on?

For instance, in Martin’s research, he has discovered that from market bubble pops, the decline is between 31-34 months.  Looking at the Nasdaq100, the peak occurred on 3-24-2000 with a decline into 10-2002. The same time frame occurred with the DOW during the Depression.

In discussing the bubble top of the financial sector, Martin reminds us that 31-34 months from the high in 2-2007 is close to September-December of 2009. We may yet have another banking crisis before this fall. This is the movement of the concentration of capital from one “hot” market to another…..booms and busts set within Martin’s predictable Economic Confidence Model.

Martin goes on to explain the fifth layer, the 72-year volatility cycle. We are entering the last and highest volatile area right now.

Martin on GOLD:

Gold is just starting to come into its own. Its role is obviously not to hedge against inflation as is stocks, but the hedge against the instability of government. For when all else fails, gold becomes the only store of wealth.

Martin Armstrong’s predictions

Dow Jones Industrials

We are still on the down trend now.

If the DOW runs its full course of at least 31-month decline, then we could see a low as soon as Sept-Oct 2009 or maybe May-June 2010

And if we FAIL to see a consistant monthly close above 8,000, then we could still see 4,000 sooner than later.

To negate an immediate decline, we need to see a monthly closing above 9030 level.

Shy of that, a low is not in place.

The fact that March closed just back above the Channel top will for now appear to rule hitting a low before June-July.

If we still consolidate into July without breaking new lows, this will be a sign of a prolonged trend down and indeed, we may be looking at the full 31 month decline.

It doesn’t appear that the DOW will remain in a bear market beyond this horizon and will rally to new highs as a hedge against inflation.

NIKKEI

It appears the NIKKEI is following the same trend as the DOW, not reaching a low until fall of 2009 or fall 2010, depending on the next few months.

There is also the possibility of government collapse in Japan, or full meltdown mode in one of Martin’s charts.

Hang Seng Index

Still in a down trend from 2007, as all the markets are experiencing. It will take a weekly close above 20,000 to see a reversal whereas a weekly close below 11,500 may signal new lows ahead. Regardless, whenever the Hang Seng hits new lows and begins its upward trend, it will recover nicely, as money moves from west to east.

London FTSE 100

Very bearish right now.

Until we see a weekly close back above 5500 level, new lows are still likely.

The extreme case takes the FTSE to 2000 by 1-2010.

Germany’s DAX

Down trend line currently stands in the low 5000 area. The main resistance stands at about 6300 and only a weekly close back above this level would suggest that a low is in place.

My comments on Martin’s latest letter

• The world stock markets have not reached final lows. Start looking for the low in fall of 2009. If we don’t see it then, it will be 4 months later or 12 months later.
• The uptrend in the global stock markets (after the lows have been established) will NOT be because the economy is recovering, it will be in reaction to or a hedge against inflation. As every government on the planet has been printing money night and day.
• Martin’s Economic Confidence Model doesn’t hit a bottom until July 2011. So business, unemployment, and the currency crisis does not get better until then regardless of the price of stocks.
• Gold will be a hold of wealth during the currency crisis and government instability until at least 2011.
• The US Dollar is a reflection of the US government, it will tank. Inflation will rise.

Invest wisely. This economic environment is the converging of several different cycles. The rules of investing have changed. This is a cycle of currency crisis, inflation, and instability; expect what you have not seen before. Think 1970’s times 10.

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