The Secret Cycle Tions That Might Come of It

asset class after another. One summer, his our local correspondents father took him to Europe, and the web of foreign currencies gave him a tactile sense of interconnectivity and the oscilla- the secret cycle tions that might come of it. The following year, Armstrong’s high-school history Is the financier Martin Armstrong a con man, a crank, or a genius? teacher showed his class the 1937 film “The Toast of New York,” about the by nick paumgarten Black Friday panic of 1869 and the gold speculator and con man Jim Fisk, with a young Cary Grant as Fisk’s accomplice. At one point in the film, Fisk quotes gold at a hundred and sixty-two dollars and fifty cents an ounce. Armstrong, aware that the price, in 1966, was just thirty-five dollars, assumed that the line was Holly- wood nonsense. Prices could not possibly have fallen so far over the span of a century. He went to the library, however, and found, on microfilm, a contemporaneous reference in the Times to a gold price of a hundred and sixty-two dollars. It further demolished his youthful assumption that assets gradually appreciated over time— that markets were linear. One day, in a newspaper, he came across a list of financial panics that oc- curred between 1683 and 1907. On a lark, he divided the span (two hundred and twenty-four years) by the number of panics (twenty-six) and found that, on average, there had been a panic every 8.6 years. As he read more, he began to sus- pect that 8.6 was a highly significant number. He discerned a recurrence of major turning points in the economy and in world affairs that followed a distinct and unwavering 8.6-year rhythm. Six cycles of 8.6 years added up to a long-wave cycle of 51.6 years, which separated such he education of Martin Armstrong, precipitated the discovery of a greater sup- phenomena as Black Friday and the com- according to Martin Armstrong, ply, their value plunged, and he was once modity panic of 1920, and the Second commencedT in 1964, when he was four- again a regular South Jersey kid working and Third Punic Wars. teen. He got a weekend job working for a weekends in a coin shop. Armstrong was, for the most part, self- bullion dealer, in Pennsauken, New Jer- Armstrong’s father, a lawyer and poly- taught. His father had him reading Ar sey, who initiated him into the idiosyncra- math whose grandfather had lost a for- istotle at the age of nine, which, along sies of the trade in coins and gold. The tune in the 1929 crash, disapproved of with movies like “Cleopatra,” inspired next year, he bought several bags speculation, and he persuaded his son to him to delve deeply into ancient history: of rare Canadian pennies, which turned put his diminished fortune in a fashion- the arcana of Mesopotamian commodi- out to be even rarer than he thought. able but conservative investment vehicle ties, the decline of the Roman denarius. Within a year, they shot up in value: a roll called a mutual fund. Not long afterward, After high school, Armstrong attended of fifty was worth a thousand American mutual funds, along with the broader the RCA Institutes, now called the Tech- dollars. Since he had roughly a thousand stock market, abruptly crashed. nical Career Institutes, and he audited a rolls, he became, for a brief spell, a teen- Armstrong began to observe that many few courses at Princeton, but he never age millionaire. Expecting, as people do, things worked like this—that occasionally earned a college degree. School bored that the pennies’ price would keep rising, a contagion, of indeterminate origin, him. he held on to them, but the high price passed through the system, hitting one Still, he adopted the habit of a learned man. In the early seventies, he became a Some see mysterious links between pi and the dates of turning points in the markets. trader and dealer in gold, and began com- Rosen jonathon

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TNY—2009_10_12—PAGE 66—133SC.—Live art r18913_RD2—please pull kodak approval proof for press color guidance piling forecasts about commodities and Pi suggested some future turning currencies, which he sent out, via Telex, points, which Armstrong watched care- to clients around the world. Over time, fully as they approached. Among them the forecasting became his business. was December, 1989, which marked the Much of it was rooted in cycles research. Nikkei’s peak before it crashed. This call He travelled to London to the British earned him the magazine Equity’s award Museum Newspaper Library and put to- as the top North American economist, gether historical data on prices and ex- and a big following in Japan, where the change rates, down to the day. He con- idea of cycles, a tenet of Eastern belief, did structed what he called an Economic not seem so far-fetched. He presided over Confidence Model, which he relied on to conferences in the ballroom of the Impe- predict an upturn in the price of com- rial Hotel in Tokyo and began investing modities in the early days of 1977. It billions of dollars on behalf of Japanese worked, and he was amazed. clients. He boasted that the Japanese He opened a forecasting firm called called him Mr. Yen. Another big pi date Princeton Economics International, based was July 20, 1998, which turned out to in Princeton, New Jersey. His model sin- mark the high point in the S. & P. just be- gled out, in advance, the day of the Octo- fore a Russian default broke the giant ber, 1987, crash. “Never did I expect this hedge fund Long Term Capital Manage- to work on such a precise time level,” he ment and nearly wrecked the financial wrote later, in an essay called “Under- system. Armstrong by now was running a standing the Real Economy.” “It made no couple of hedge funds, and the Magnum sense. I personally assumed it was just a Hedge Fund Reporter named him Fund fluke. This took place on the minor half- Manager of the Year. way point up the first leg of the 8.6-year Not long afterward, he claims, the cycle, at 2.15 years.” Afterward, he was C.I.A. telephoned his firm, eager to get a messing around with numbers and real- closer look at his model. Agents had been ized that 8.6 years was exactly three thou- watching him and were curious about sand one hundred and forty-one days: how he had managed to call the collapse 3,141, the number pi times a thousand. of the ruble. They asked if he would come The cycle mystery had deepened. If pi was to Washington, he said, and build his essential to the physical world, perhaps it model for them. He declined. Finally, in somehow governed the markets, or the 1999, he published a report—his last at fluctuations in human behavior and mood Princeton Economics—explaining the that manifested themselves in the mar- part that pi had played in his calculations. kets. It was, after all, the magic number The model wasn’t perfect. It failed, associated with the swing of a pendulum, among other things, to foresee its devel- Heisenberg’s uncertainty principle, and oper’s demise. In September, 1999, Arm- the Great Pyramid at Giza. Why not the strong was charged with defrauding Jap- vast monuments of data known as the anese investors of nearly a billion dollars. financial markets? “Suddenly I saw it in It was a strange and convoluted case, and my mind’s eye,” he wrote. “There was a his view of it, unsurprisingly, does not Geometry of Time itself.” square with the government’s. The up- Armstrong didn’t tell anyone about pi. shot, though, is that he has now spent He kept it a secret for twelve years, and he more than nine years in jail—a pi cycle continued to sell his services as a consul- and then some. tant at up to ten thousand dollars an hour. He no longer talks to central bankers, (The Wall Street Journal wrote, “People or has access to his computer models— who think talk is cheap haven’t talked to and, apparently, no one else does, either. Martin A. Armstrong.”) He had clients (“The methodology has to remain a se- and offices overseas, and cultivated con- cret until I am free at last,” he wrote re- nections with central bankers, and with cently.) But the cycles spin on. Margaret Thatcher. It was more sensible “Here’s the thing that gets me— to suggest that his models, among them what makes the hair on the back of my one called a Panic Cycle Model, which neck stand up,” a former employee of spotted big reversal days, were rooted in Armstrong’s, who now manages a hedge certain fundamentals and complex com- fund, half-whispered to me over the puter calculations, rather than in a simple phone not long ago. “So December ’89 is mystical number. the high of the Nikkei, which he called.

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TNY—2009_10_12—PAGE 67—133SC. or something). There are falling wedges, flags and pennants, scallops and saucers. One of the original technicians was Charles Dow, a co-founder of Dow Jones and the Wall Street Journal. Adher- ents later elaborated on his views to cre- ate Dow Theory, which categorizes trends based on a variety of time periods. These days, many professional investors and traders rely at least a little bit on the technicals. Some hardly look at the fundamentals at all. Cycle theory is a kind of Gnostic offshoot of technical analysis. The notion that things, generally, happen in cycles goes back thousands of years— Joseph’s seven-year fat-lean cycle—but in the West the formal inquiry into economic cyclicality took hold in the mid- nineteenth century. The British economist William Stanley Jevons correlated “I had to talk to her about birth control—you talk to her about drugs.” economic cycles to the sun, proposing that fluctuations in sunspot activity might affect crop outputs. Around the •• same time, a Frenchman named Clé- ment Juglar identified an economic Go back 8.6 years. May 10, 1981.” He value and the price you think suit it best. cycle of seven to eleven years. In the ticked off some milestones—Mitterrand, Pants, Inc., looks good because it has nineteen-twenties, Nikolai Kondratiev, Volcker—and then went back another great earnings and cash on hand, or be- a Soviet economist, concluded that cap- 8.6, and then another. “There’s a high-to- cause it has a charismatic C.E.O. in good italism was inclined to half-century cy- high-to-high rhythm here.” He said that health, or because Europeans love buy- cles of boom and bust and boom again, he had counted forward from July 20, ing pants and the euro is strong. This is rather than, as Marx believed, a single 1998, to the next major date: “Febru- what most civilians think that market inexorable march toward collapse. ary 23, 2007. I thought, This could be professionals do; it’s what the pros talk Wrong answer. Stalin had him impris- important.” about in the papers and on TV. oned and executed. It was the Austrian February 23, 2007, quietly came The other is technical analysis. It ig- economist Joseph Schumpeter, he of and went, and the Armstrong skep- nores all this noise; it disregards earnings, “creative destruction,” who called these tics sneered. But it turned out that that and exchange rates, and debt to equity. In cycles Kondratiev waves and popu day had seen some of the tightest credit its strictest form, it doesn’t even care what larized them in the West. In the Kon- spreads ever (that is, the easiest credit); product a company sells. Technicians dratiev waves and other commonly home prices, meanwhile, had begun a don’t believe that a stock has any intrin- cited cycles—the Kitchin (three to five sharp decline. It was the peak of the easy- sic value. They focus instead on the mar- years), the Kuznets (fifteen to twenty- money bubble—the edge of the preci- ket itself—on the action, the trading be- five years)—the time span is flexible. pice, the lip of the recession. That this havior of a security or an index. They They are suggestions, not rules. Hard- became clear only in retrospect says as study the charts for patterns of past per- core cyclists, on the other hand, often much about the perils of prediction formance that hint at future results. seek and find instances of periodicity as as it does about a propensity to see, as the There are hundreds of templates, rang- rigid and fixed as the laws of physics, past recedes, patterns and narratives that ing from the basic (“head and shoulders,” which is why hardcore cyclists are often flatter our particular angle on the world. a peak flanked by two smaller peaks) to dismissed as mystics or freaks. Still: “Something turned and you the runic (Bollinger bands, an elastic It is easy to scoff at cycle theory. could feel it,” the hedge-fund manager method of determining a trading range) Its whiff of predestination chafes the said. “But you couldn’t find much of and the silly (the Alligator. From a trad- scientific mind. Our culture’s funda- anything about it in the papers.” ing Web site: “When the Jaw, the Teeth mental belief in causation and conse- and the Lips are closed or intertwined, it quence, to say nothing of free will, does here are two modes of financial- means the Alligator is going to sleep or is not easily accept the suggestion of help- market analysis. The first is funda- asleep already. As it sleeps, it gets hun- lessness, or of some kind of as yet un mentalT analysis—you evaluate, say, a grier and hungrier—the longer it will identified exogenous force. God may company or a security, and draw conclu- sleep, the hungrier it will wake up.” decide the outcome of football games sions about its prospects, and assign it the When the Alligator eats, you should, too, and debilitating illnesses, but he does

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TNY—2009_10_12—PAGE 68—133SC.—live art A14293—#2 page—text changes not intervene in matters of investing and derstand it,” one trader told me. “It’s not embarrassing to explore in modern eco- finance. something you can share openly with nomics,” another trader said. “These And yet patterns exist, and we slowly colleagues. It’s not accepted.” topics are not fit for polite conversations discover them. Seasons, migrations, “I’ve studied cycles for years,” Dimi- in most circles.” moons: the template is there. Con- tri Chalvatsiotis, a London-based trader sciously or unconsciously, most people at a global hedge fund, told me. “It’s part ne day, I mentioned cycles to an accept certain components of cycle the- of the methodology. It’s an overlay that acquaintance who used to work for ory. We seek and see patterns in things. defines the way I look at the world. GoldmanO Sachs, and he excitedly took It is the way our minds work, presum- These cycles govern the planet. That’s down from his stacks a book he had pur- ably for the purpose of survival. where you start. Some people believe loined years ago from the library of the Few would deny that there is a busi- news drives markets. I don’t.” J. Aron research department (J. Aron ness cycle, a fluctuation in the economic “The way I think about cycles in gen- being a commodities-trading firm that fortunes of a nation, or even a political eral is that they provide a great approach Goldman bought in 1981, and that cycle, an ebb and flow between mass to offsetting human biases,” Laeeth supplied Goldman with its current conservative and liberal sentiment that Isharc, a hedge-fund manager in Lon- C.E.O., Lloyd Blankfein). It was “Cy- reverberates in the markets. And it’s don and previously a trader at the giant cles: Selected Writings,” an anthology, common for us to think that some things investment firms D. E. Shaw and Cita- published in 1970, of the work of Ed- are overdue—a change in the weather, a del, said. “We tend to think that the ward R. Dewey, who was the chief eco- Masters championship, a comeuppance, future will be like the last few years, nomic analyst in the Department of or a lucky break. But most of us balk at only more so. Cycles are a good way of Commerce in the early thirties, under the notion that any of these may be gov- reminding oneself that there is mean Herbert Hoover. To investigate the erned by some kind of deeper universal reversion.” causes of the Great Depression, Dewey math. The big hitters who do keep an eye had talked to one economist after an- Armstrong, in his essay “Under- on cycles seem to do so out of a mixture other; each of them seemed to have a standing the Real Economy,” said, “I of hard-won agnosticism and the con- different explanation, which suggested have spent a lot of time trying to com- sideration that if enough other people to him that no one had a clue. But he prehend how such a model can even are paying attention to this stuff then so lingered over the work of one econo- work on a specific level to a precise day, should they. They keep a wary eye on an mist: Chapin Hoskins, who was inter- years and decades in advance. The only array of cycles and waves, which achieve ested in the “behavioristic” approach. explanation is the subject matter is so actionable significance when they echo Hoskins, Dewey wrote, discovered “that intensely complex that there is indeed a or converge on each other, especially in there was a tendency for certain busi- hidden order within what would appear concert with something more tangible, ness behaviors to repeat at fairly regular to be random chaos.” such as information or news. intervals. The reasons for these regular- Bill Erman, a market-timing analyst “The idea that there may be celestial ities were unknown, but the patterns in Nashville, and the proponent of a influences on the spontaneous desire to were too regular to be easily the result of system called Ermanometry, told me, invest or not is an old one, but it’s too chance. They, therefore, had forecast- “We believe the market is perfect to the second.” (He concedes that we don’t have the data to prove it.) He noted that termites build their perfect mounds, and bees their perfect hives, and spiders their perfect webs, all around the world, without, presumably, being conscious of why or what they are doing. “Man- kind is unconsciously constructing a geometrically perfect market,” Erman said. We can’t help building our own beehives in the air. The charts are our termite mounds. I was told, time and again, that some of the biggest investors out there view even the wackier cycle theories with re- spect, and factor cycles into their alloca- tions. This may say less about the viabil- ity of cycle theory than it does about the chimerical folly of market divination— which may be why such investors are loath to discuss it. “You don’t talk to people about it, because they don’t un- “I wasn’t texting. I was building this ship in a bottle.”

TNY—2009_10_12—PAGE 69—133SC.—live art A14397 ing value.” When F.D.R. took over, “Something Out There” was the title and then retreated into its hole. They Dewey left the Commerce Department of a Profile of Dewey, by John Brooks, say that, like the length of women’s and soon found that these cycles were that ran in this magazine in 1962, al- dresses and the release of new horror everywhere—“in animal abundance, most five lynx-pelt cycles ago. (This films, tolerance of cycle theory increases sunspot numbers, disease, weather, and data set, meagre as it is, suggests that in down markets. It blossomed in the many other things.” another story featuring Dewey will ap- thirties, enjoyed a revival in the seven- The purloined Dewey book, nearly pear in these pages in 2056.) In the forties, and is having a quiet renaissance eight hundred pages long, contains one ties, Dewey formed the Foundation for now. (The interval between each revival delightful data set after another: “The the Study of Cycles, which endeavored, is about four pi cycles.) We tend to as- 16 2/3-Year Cycle in Arizona Tree in a pre-computer era, to collect and cribe rising markets and an expanding Rings, AD 900-1939,” “The 4-Year process as much cycle data as possible. economy, as long as they last, to our Cycle in the Consumption of Cheese, To Dewey’s frustration, most of the own ingenuity—to progress, experi- 1867-1953.” Dewey produced sine foundation’s members were more in- ence, rationality, a generational refine waves depicting fluctuations in the terested in figuring out how to use cy- ment in the ability of economists and price of malleable iron pipe fittings and cles to outsmart the stock market, but central bankers to manage our affairs. in postal receipts in Milwaukee. But it’s he was mindful that their self-interest Bull markets are seen to be incarnations the ones that overlap that widen the funded his efforts to determine what the of human perfectibility. (Home prices eyes. For example: Starting in 1735, the Something might be. His tentative hy- would rise forever, because we had in- Hudson’s Bay Company kept track pothesis was that it was astronomical— vented a new kind of debt, one that of the number of lynx pelts collected “not the sun, directly, but something didn’t ever have to be repaid.) When in Canada each year. The number beyond the earth—either inside or out- things go to pieces, we shirk responsi- rose and fell, precipitously, in a distinct side our solar system.” Much as his work bility and seek other explanations. Fa- cycle of 9.6 years. As it happened, this seemed to summon intimations of the talism creeps in. It can’t be merely that cycle was synchronous not only with divine, it was squarely, and solely, statis- we are, as ever, greedy, short-sighted the variable abundance of other indige- tical; if “Cycles” was a sacred text, it creatures, prone to self-delusion, inca- nous fauna, such as snowshoe rabbits was Levitical, banal. As Dewey stated pable of learning from the past. There and Atlantic salmon, but also with the in 1958, “I believe that the future is com- must be something, or Something, else cycles of seemingly unrelated phenom- pletely knowable—but not, of course, at work, beyond our understanding or ena, such as heart-disease rates in New by human beings.” He told Brooks, control. England and chinch-bug populations “People try to make a religion of cycle in Illinois. Dewey reasoned that all this study . . . either a religion or a crack- he array of cyclomaniacs (an old had to be either a coincidence or the pot fad. Actually, it’s neither one. If Dewey term), pattern seekers, and work, as he put it, of “Something Out I’m right, it’s an emerging science.” marketT timers are like rival Christian There.” He favored the latter. If it was emerging, it did so haltingly, sects, prone to doctrinal disputes, petty jealousies, and exclusive claims on divine revelation. They tend to think that their patented system is best, and trum- pet a dozen peerless predictions. They cover a wide spectrum, from the omniv- orous technicians to the market astrolo- gists, who look to the stars. Arch Craw- ford, a well-known forecaster, has made a series of startlingly accurate predictions over the years, on the basis of plan- etary and astrological alignments. He says that he was up a hundred and six per cent last year. The summer of 2010 will be “devastating,” he told me. “We’ll have the worst stuff in the sky in the two hundred years we’ve checked.” (Indeed, at the end of July Mars and Saturn will be conjunct and in opposition to Ura- nus, and all three will be squared to Pluto.) Crawford quoted a line that he attributed to J. P. Morgan—“Million aires don’t have astrologers, but billion- aires do”—and told me that at the Mor- gan Library you can still see, on the “If it’s just the one after dinner I don’t mind.” ceiling of Morgan’s old private library, a

TNY—2009_10_12—PAGE 70—133SC.—LIVE ART—A 14569—#2 page—new cartoon and caption depiction of the zodiac; the entrance is kind. (After enduring a video called under Aries, Morgan’s sign. The astrol- “History’s Hidden Engine,” which fea- ogers may be the fringe’s fringe, but tured one pale fellow after another talk- their predictive powers seem no better ing about fractals, my wife turned to me or worse than those of the secular fun- and said, “There aren’t a lot of women, damentalists who scoff at them. They are there.”) In 1971, DeMark, then a have a following. gofer at a money-management firm in Then, there’s Fibonacci. It is widely Milwaukee, was happily perusing an ar- believed, but variably disputed, that such ticle published by Bank Credit Analyst natural phenomena as the spirals in that mentioned research on wave theory nautilus shells, hurricanes, and galaxies; and Fibonacci conducted, in the nine- the branching of tree limbs, leaf veins, teen-forties, by an accountant named skeletal and circulatory systems; and the Ralph Nelson Elliott. (Elliott was the distribution of flower petals and brain author of a book called “Nature’s Law— waves conform to something called the The Secret of the Universe.”) Fasci- golden ratio, or phi—represented by the nated, DeMark called Bank Credit An- irrational number 1.618. In a golden alyst’s offices. The article’s author, spiral, for example, each successive outer DeMark said, suggested that he call a curve might be 1.618 times as far away travelling tax judge in Canada named from the one inside it as the last. In the Jack Frost, who in turn suggested that early thirteenth century, as fans of “The DeMark call two doctors in Florida, Da Vinci Code” and the band Tool the first of whom agreed to come up to know, Leonardo Fibonacci, a Pisan Wisconsin to present some data on Fi- mathematician, unearthed a series of bonacci and the markets to DeMark numbers in which each successive num- and his bosses on a Friday night. De- ber is the sum of the previous two—1, Mark went to the Milwaukee airport to 1, 2, 3, 5, 8, 13, 21, 34, 55, etc. It has fetch him, and, after wandering around many elegant properties. One is that the terminal for a while, came across every fifth number, and only every fifth a man with a long white beard, who number, is divisible by five. Another is pointed at DeMark and said, “You know that the ratio between each number and how I know you’re Tom DeMark? the one before it converges on phi. You’re walking in Fibonacci angles.” Interest in phi, and the Fibonacci (The other doctor had told DeMark on sequence, as a financial cipher, goes the phone, “I’ve been married five times, back many decades. (Dewey wrote a I have eight children, and I take a vaca- report on Fibonacci, “Non-Symmetri- tion every thirteen days.”) At the meet- cal Cycles,” in Cycles, the foundation’s ing, the doctor took out a folder with magazine, in 1966.) The idea is that, graphs depicting the Dow Jones Indus- say, the S. & P. 500, in an up market, trial Average back to the inception of its will consist of a five-legged ascent, with precursor, in 1884. three progressively rising peaks and “It embarrassed me,” DeMark re- two dips in between, followed by a called recently. “I thought I was going to three-legged descent, interrupted by one lose my job.” He did not. The Fibonacci lower peak: 5 up, 3 down—you, too, obsession spooked him, but it infected can make billions. him all the same, because he began to Tom DeMark, a market-timing an- see the numbers everywhere, too. Over alyst, has worked with the hedge-fund the next decade, DeMark spent thou- titans Steven Cohen, John Burbank, sands of hours poring over old stock and Paul Tudor Jones. He has, over charts with a magnifying glass and a cal- forty years, devised a Fibonacci-based culator, identifying patterns. system to monitor and time the exhaus- Ralph Nelson Elliott had also caption of trends—that is, to figure out at tured the imagination of a young tech- exactly what point a market, or any- nical analyst at Merrill Lynch named thing, really (it worked, he says, for the Robert Prechter. (Merrill in the seven- population of geese on Horicon Marsh, ties was a hotbed of technical research.) in Wisconsin), will reverse directions. Prechter found Elliott’s original works DeMark’s initiation into the fellow- in the New York Public Library and ship of Fibonacci was typically circu- republished them, turning the Elliott itous. The discipline attracts a certain Wave Principle, long forgotten, into a

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TNY—2009_10_12—PAGE 71—133SC. fashionable conveyance for Fibonacci ing for the Rosetta stone so at the end of on Wall Street. Elliott maintained that their lives maybe they can make money.” the arrangements of the market’s zigs and The Fibonacci work is not, in con- zags were repetitious, predictable, and ception, anyway, pure numerology. The fractal, like the crenellations of ferns theory is that, if the markets are distill and seacoasts—self-similar at any scale, ations of herd psychology, mass con whether they depict three hours of trad- fidence, or what Prechter calls “the so- ing or three decades. The hard part is cial mood,” and if the markets fluctuate figuring out where you are in which in discernible patterns, then the under- wave. Stare at a chart long enough and lying moods must follow predictable it will start to look like whatever you patterns as well. Most economists be- want it to, except easy money. (Prechter lieve that we react, whether rationally or doesn’t manage money; he sells his anal- irrationally, to incidents and informa- ysis to people who do. What many of tion. In Prechter’s formulation, which these guys have in common is an under- he has called “Socionomics,” the mood whelming net worth and a commensu- comes first, and it shifts according to the rate declaration that they aren’t in it just wave principle. A universal math nudges for the money.) Is it possible, consider- us into wars, bubbles, and a passion for ing the mind’s capacity for converting ABBA, and phi may be the key to it. complexity into some kind of manage- What’s not the key, Prechter believes, able order, that we may be imposing is pi. “It’s important to geometry but not these patterns on randomness? to living systems,” he declared. Prechter “I think it’s a shallow question,” Prech and Martin Armstrong were both on ter said. “Think of the stars, the zodiac. the board of the Foundation for the The ancients didn’t say, There’s a bear. Study of Cycles, Dewey’s old think tank, They needed the stars for the purposes where Armstrong served for a number of navigation and so came up with of years as chairman. Prechter is mysti names for recognizable arrangements of fied by Armstrong’s writings. If Prech- them.” ter is Presbyterian, Armstrong is Pente- In 1987, a documentary called “Trader,” costal; he certainly speaks in tongues. about the then little-known fund man- Yet there are glossolalians who profess ager Paul Tudor Jones, appeared on to understand. PBS. After it aired, Jones reportedly had “Armstrong’s a massive talent, a mis- it taken out of circulation, buying up any understood talent,” Chalvatsiotis said. copies that he came across. Over the Isharc said, “I don’t know Marty, but summer, sections of it turned up on I have no doubt that he’s rescued from YouTube, and you could see Jones and darkness some very real phenomena that his baby-faced partner, Peter Borish, may have been evident a hundred years applying Elliott wave theory to their ago. He’s clearly a genius, although not comparison of the movements of late without flaws. He overstates his case a 1986 with those of 1928. It helped them bit and understandably has a chip on his call the 1987 crash, and Jones became a shoulder. After his pi date in February, billionaire. 2007, his stuff is everywhere now. Lots Jones won’t talk about it now, but of people talk about it.” Borish, the chief executive these days of a firm called the Computer Trading rmstrong’s model is designed to Corporation, doesn’t disavow any of it. apply to the most stretched markets, We met one weekday morning in Cen- withA the most excess. It tries to track the tral Park and talked long enough to ob- path of money sloshing around the world. serve joggers and dog walkers on their “Each market has its own cycle, but when way both in and out of the Park, at plot- capital conglomerates around one it will table intervals; the amplitude suggested take on the characteristics of the 8.6,” he high unemployment. “If your goal is to said. “The 8.6 is the predominant global do research and try to extract money model.” This is his explanation for the from the markets, you should look at all way his pi highs and lows move, like the ideas,” he told me. “Whatever works.” Olympics, from, say, Tokyo to Moscow He went on, “A lot of these guys are and then New York. freaks. And I don’t mean that in a bad Pi dictated that Armstrong was an way. They spend their entire lives search- intermittent investor, rather than one

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TNY—2009_10_12—PAGE 72—133SC. who, like most quantitative managers, ing the same source material,” he told trades constantly in order to exploit tiny me.) Armstrong tends to wander seam- anomalies. The hedge-fund manager lessly from a discussion of history and who used to work for Armstrong re- economics to the arcana of his own legal members him coming out of his office case, the common theme being the op- in September, 1998, two months after pressiveness of government. The re- he’d got short in front of the ruble cri- ports are not the same, but they often sis. Monica Lewinsky was on TV. “My seem to say the same things, in a differ oscillators just turned,” Armstrong an- ent order—a prison-epistle version of nounced. He booked his profits, pulled the old Twainism that history rhymes. out of the market, and went to his beach They may be fractal. house, on the Jersey Shore. (Pi has its Many of the reports feature crude limits. “After my case began, it came drawings on the front, sometimes of out that the number of the street ad- Armstrong himself, standing in a suit dress I had grown up in was 314,” Arm- and tie before a field of ones and zeros strong wrote. “I still regard that one as embedded with equations derived from a coincidence.”) pi. He sends photocopies out to a small Armstrong, no question, is an imper- number of friends, who then post them fect conveyance for the science of cycles, on the Internet or pass them around. and not just because he’s a federal con- He is coy about naming these friends, vict. His writing is what you might call because he worries that they would nonlinear, unless the line in question is be harassed if anyone found out who one that tracks the stream of his con- they are. sciousness. In the nineties, Armstrong Amid the global economic convul- wrote a heavily researched but quixoti- sion of the past year, his reports have cally told two-volume account of the achieved a wave of samizdat popularity Great Depression called “The Greatest on financial blogs like Zero Hedge, Bull Market in History.” That it was which is produced by a former hedge- self-published, and apparently unedited fund analyst who has adopted the alias (the book’s first sentence is missing a Tyler Durden, after the hero of “Fight word), has not deterred its fans from Club.” These blogs, and their readers, declaring it a seminal work. He says that tend toward a cynical, even conspira- he has a third volume at home. He is tional, view of the financial markets, also working on a new book, to be called, the presumption being that pretty much naturally, “The Geometry of Time.” everyone in power, in Washington and In 2007, inspired by letters he was on Wall Street, is either incompetent getting in prison and, he says now, fore- or corrupt, and that our dissembling, seeing disaster, Armstrong began pro- bubble-abetting ways will lead to fur- ducing research reports again, under the ther doom. Armstrong’s recent mus- banner of Armstrong Economics. He ings on a purported Goldman Sachs types them in the prison library on a conspiracy found a sympathetic audi- Brother typewriter (white-out is forbid- ence. The discussion threads can veer den), and draws the graphs by hand, or from political name-calling to know- else Xeroxes and pastes in graphics from ing, sophisticated commentary, and, in other sources. Disdainful of domestic their assessments of the work and san- news media, he relies mainly on the Fi- ity of Marty Armstrong, can range far nancial Times. and wide. Some call him a genius, oth- In his essays and letters, he compares ers a crank and a con man. himself to Adam Smith, Abraham Lin- coln, Galileo, and Neo, from “The Ma- etting to the bottom of Martin trix.” (Armstrong has also said that the Armstrong’s criminal case is about 1998 Darren Aronofsky film “Pi,” in asG difficult as proving, once and for all, which corporate agents hound a man that the Fibonacci sequence is God. It who discovers that pi may be the secret can be especially hard to achieve cer- to the stock market, may have been tainty in a complex white-collar case. based on him, even though the film Prosecutors can be financially unsophis- came out before he revealed his pi model. ticated, and defendants may lie and ob- Aronofsky says that he’s never heard of fuscate. Imagine a masked man accused Armstrong. “We must have been read- of robbing a bank who maintains, all

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TNY—2009_10_12—PAGE 73—133SC.—#2 page—text changes court filings over the years, he has accused his captors of a conspiracy. He contends that Republic, with the coöperation of the government, scape- goated him for its own shady practices and to derail his investigation into ma- nipulations of the commodities markets. This conspiracy, in Armstrong’s telling, widened to include the soon- to-be-killed financier Edmond Safra and the Russian Mob. Armstrong believes that he is in prison because he knows too much about the inner work- ings of “the Club,” as he calls the major banks and their enablers in government; he maintains that he is a political prisoner, not unlike Kondratiev. In Armstrong’s civil trial, the judge, Richard Owen, demanded that, for po- tential restitution, he surrender about fifteen million dollars in gold bars and coins that it was believed he had, along with a number of antiquities, including “Not to worry—I’m going to put our best-looking people on the job.” a gold crown and a first-century bust of Julius Caesar. He produced some of what he was asked for, but not much, •• claiming that he no longer owned the rest of it. The Judge ruled that Arm- along, that he was merely cashing a the most part, executives at Japanese strong was in contempt, and sent him to check. corporations involved in such industries the Metropolitan Correctional Center, In early September, 1999, the F.B.I. as electronics, machine tools, chemicals, which is where, speaking of cycles, Ber- raided the offices of Princeton Eco- and yogurt. Their companies’ invest- nie Madoff was held earlier this year, nomics and carted off dozens of boxes ment portfolios were way below water before his sentencing. of documents. Armstrong was arrested after the 1989 collapse of the Nikkei, Armstrong wound up spending and posted bail. Later that month, the yet they weren’t required, by Japanese seven years there, without his criminal U.S. Attorney handed down a criminal law, to acknowledge this fact. (Ameri- case going to trial—the longest federal indictment, alleging that Armstrong cans jeered at this scenario; now they do contempt incarceration in the nation’s had been running a Ponzi scheme, and their best to emulate it.) Armstrong is- history. Each year, Judge Owen upheld the S.E.C. and the Commodities and sued them notes—which he called “the the contempt order. Armstrong went Futures Trading Commission filed civil rescue product”—promising to pay through a series of court-appointed suits charging that Armstrong had them the original, above-water value lawyers and, at times, represented him- defrauded investors of nearly a billion of their investments, five or ten years self. The S.E.C.’s Armstrong case file dollars. hence, and in exchange he took over was lost when the September 11th According to the government, Arm- their wounded portfolios. He liquidated terrorist attack obliterated its offices, strong sold interest-bearing notes to the portfolios, converted the yen into in 7 World Trade Center. In 2001, Japanese investors and, by mutual dollars, and put the money to work in Republic admitted that a number of agreement, deposited the proceeds in the United States. its employees had committed fraud, and managed accounts that his firm kept Armstrong’s refutation of the allega- the Japanese investors were paid roughly at Republic Bank, in New York. He tions is relentless. He continues to main- six hundred million dollars. Nobody then used the incoming money to tain that it didn’t matter what the ac- from Republic went to jail. Still, Arm- cover payments due to other, earlier count statements said, because, really, he strong’s contempt ruling held. investors, and also moved money out didn’t have to keep accounts for the in- Prison was not kind to him. At one of their accounts and into accounts vestors. He also says that he paid inves- point, a fellow-inmate beat him in his that he used to make speculative trades, tors on schedule, that prosecutors didn’t cell. (Armstrong suspects that it may have which generated spectacular losses. To understand the fluctuating nature of the been an assassination attempt.) In 2006, conceal this, he and Republic issued dollar-yen exchange, and that it was Re- he was put into solitary confinement, for phony account statements to the Japa- public, and not him, who fiddled with allegedly damaging a vent. Soon after- nese investors. the accounts. ward, he decided, in an agreement with The Japanese note holders were, for He says a lot more. In dozens of the prosecutors, to plea to just one count in

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TNY—2009_10_12—PAGE 74—133SC.—Live art a14410—#2 page—text changes the indictment, conspiracy to commit Smith,” he said. “You get a division of fraud. The twenty-three other charges labor. There’s a guy who knows how were dismissed. He did so in part, he to sew, a guy who makes the beds, a says, because he believed that he might guy who does the wash, a guy who’s a get credit for time served. The criminal- barber.” The coinage is mackerel, or court judge, however, gave him the macks; the inmates buy plastic pouches maximum sentence—five years. of it from the commissary. The barber, Armstrong was still stuck in the the bedmaker, the tailor: they usually M.C.C., for civil contempt. A U.S. get paid in fish. Armstrong’s line was Court of Appeals rejected yet another financial and legal advice, and he gave appeal, although a concurring opinion, it out free. written by Sonia Sotomayor, noted that In a newsletter I’d got from him in “the district court’s finding that Arm- the mail the day before, he’d written, “Pi strong is motivated solely by greed is is not the actual source of cyclical activ- not enough to justify disregard for due ity. It is merely a proof that TIME is process.” Judge Owen was eventually subject to geometry.” Did he think there replaced and the contempt order aban- was Something Out There? doned. In April, 2007, Armstrong was He sighed. “At its core, a cycle is the moved to a low-security federal prison mechanism by which energy is trans- camp at Fort Dix, in southern New Jer- mitted,” he explained. “Think of stand- sey, to begin serving his sentence. On ing in the water at the beach, as a wave arriving, he was told by other inmates washes in. You can feel the wave, but that he looked like a ghost. the water isn’t moving. The energy passes through the water. Society is the he prison camp, situated on the same way.” Sometimes there’s a rogue Fort Dix military base, is a white wave—a big event, a major turn, a de- windowlessT box that brings to mind pression. It was his belief that the rogues a giant shipping container. It isn’t a were not random but, rather, entirely, country club, but it ain’t Alcatraz, either. if theoretically, preordained, like the The prisoners can walk around outside. concentric reverberations of a stone, or Armstrong sleeps in a vast dormitory millions of stones, hitting the surface of hall that houses two hundred men in a pond. bunk beds. Seniority affords him a lower Fair enough. But what creates the bunk. He works as a clerk, making about energy? What dictates the geometry? eighty dollars a month. He spends sev- “There are going to be people who be- eral hours a day in the library. He gets lieve and those who don’t,” Armstrong visits from his mother and a grownup said. “If it wasn’t that way, you wouldn’t son and daughter, who live nearby. (His have a cycle.” wife left him when their daughter was He said that he was working on six months old.) He even has a license to a paper about Switzerland: the Habs drive a truck around the base. burgs, William Tell, Hitler, secrecy, I met with Armstrong at Fort Dix in gold. The upshot was that capital, like late September, in a tidy visiting room water, goes where it encounters the least decorated with a mural of a tropical resistance. “Given a certain set of cir- beach and a poster about swine flu. cumstances, people do the same thing Armstrong was squatter than I’d ex- over and over again,” he said. “There pected, and bald, with a starchy paunch, aren’t many options.” Soon a guard in- pocked skin, and a slight underbite. And dicated that our time was up—Arm- yet his eyes had an unnerving gleam that strong was due back in the dorm for the contained something like mirth, as four-o’clock count. though he’d surreptitiously shaken up a The next day, Armstrong called can of Pepsi and handed it to me to from Fort Dix to clarify his basic phi- open. I bought him a cup of French Va- losophy: it was the big bang that cre- nilla coffee out of the vending machine. ated the energy waves, setting in mo- We sat down across from each other at tion the cycles that govern the universe. a red plastic table. A fly settled on the As for pi, he had a theory, which he’d shoulder of his prison greens. never shared with anyone, that its ubiq- His Jersey intonations were Philly- uity had something to do with dark tinged. “Prison is a microcosm of Adam matter. 

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