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CFTC Rule 4.41 – Any simulated or hypothetical performance results have certain inherent limitations. While prices may appear within a given trading range, there is no guarantee that there will be enough liquidity (volume) to ensure that such trades could be actually executed. Hypothetical results thus can differ greatly from actual performance records, and do not represent actual trading since such trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight and back testing. Such representations in theory could be altered by Acts of God or Sovereign Debt Defaults.
It should not be assumed that the methods, techniques, or indicators presented in this publication will be profitable or that they will not result in losses since this cannot be a full representation of all considerations and the evolution of economic and market development.. Past results of any individual or trading strategy published are not indicative of future returns since all things cannot be considered for discussion purposes. In addition, the indicators, strategies, columns, articles and discussions (collectively, the “Information”) are provided for informational and educational purposes only and should not be construed as investment advice or a solicitation for money to manage since money management is not conducted. Therefore, by no means is this publication to be construed as a solicitation of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any such investment.
Copyright 2012 Martin A. Armstrong All Rights Reserved. Protected by copyright laws of the United States and international treaties. This report may NOT be forwarded to any other party and remains the exclusive property of Martin Armstrong and is merely leased to the recipient for educational purposes.
We will be holding three World Economic Conferences this year where we do exclusively Forecasting the World. This is where you will begin to see the global interconnectivity of the markets and how Capital Flows around the world making everything move. This is how the world truly ticks. No nonsense. No half-baked theories. This is where you will see how everything truly functions and how such global trends are set in motion over extended periods of time so that they are not easily altered.
The greatest fallacy in economics is to constantly look for the cause of every effect to be purely domestic. When a stock market crash develops, the first thing government does is try to hang some domestic player. They do not even look beyond the borders for they cannot prosecute others overseas and the need to to do to pretend they will prevent a crash from every happenings again.
Everything is global. The trends are set in motion and it is a global correlation that is the only way to reveal them and forecast them. You can no longer forecast any market in isolation. Everything must be considered as a whole.
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Copyright Martin Armstrong all Rights Reserved July 30th, 2012
The Collapse in the Rule of Law & Exponential Rise in Taxation
The Precursor to the Collapse of Western Socioeconomic Systems
he key pattern that is always the final warning sign of the collapse of a society becomes most self-evident within two primary factors:
1) The Rule of Law
2) The rise in taxation
Each is fueled by government waste and inherent corruption. Japan has been the bastion of inherent political corruption and will be the next to collapse into dust as it approaches as 26 year low. The dissimulation of the Rule of Law by the judicial courts could ill disguise the rancor of their hearts of the bureaucrats to rig the game and perpetuate their worthless and destructive possession of power to maintain their control over society. The daring hopes of political ambition have been set free from the salutary restraints of law and prejudice; and the most vile and corrupt of mankind might, without folly, now entertain a hope of being raised by corruption to a rank in the bureaucracy. The motives of such corrupt individuals within the bureaucracy are often simply to get even with those in the private sector for having what they see as the greater fortune rather than the greater skills. As they say those who cannot do teach and those that can – just do. Perhaps that old saying needs to be revised by stating – those who cannot make it in the real world, hide in the bowel of government resentful of the fortunes of others regardless of merit. In this case, those who lack the wisdom and skill set to be successful in the private sector are drawn to the public sector by its corruption, power, and the ability to strike deep and fatal wounds at those in the private sector whose success they truly despise.
Our governments today have trampled on every principle of law and justice. The bureaucrats have basked in the hatred and jealousy of Karl Marx targeted and justified in their own minds against those in the private sector who have more than them under the pretense that this is not “fair”. They are supported by the avowed power of the sword in the form of legal persecutions and intimidation. No man of distinguished skill, elegant accomplishments, or knowledge of civil business, will ever be suffered near heart of government power; and the court of these political entities has revived the idea of coveting thy neighbor’s goods – one of the very 10 Commandments that it is widely believed God himself forbid for obvious reasons.
Today, the socialism they adopted as the justification of their usurpation of power is collapsing and crumbing into dust all around us. The excuse is always the “rich” have not paid their “fair” share as if they should be willing to turn-over all their assets to support public servants that contribute nothing to the wealth of a nation. They pretend that government would have been content and would live within its means had the greedy rich only paid their fair share while constantly lowering the threshold of the rich to increase their coffers. The government view of “fair” is not only a disproportionate share of one’s income and assets, buy their right to act like a landlord whose rent can be arbitrarily raised at any moment because of his reckless spending. He suffers no responsibility himself and expecting you to bail him out perpetually. Government thus leaves us with a deep impression of terror and detestation, unable to plan the future, and forever standing watch over our shoulder for their sumptuary and arbitrary laws and actions.
Even in Japan, the end is rapidly approaching. The LDP political body that dominated the nation’s postwar period that was stripped of powers in the 1990s amid corruption scandals and an a pervasive economic slump that will not end before 26 years from 1990, is regaining control thanks to a ruling party that promised to rein it corruption and has utterly failed because while the political head may change, the bureaucratic body, steeped in corruption, will never change regardless of who sits at the head. This is a bureaucratic body that truly is the tail that now wags the dog.
The Japanese Democratic Party of Japan took office in 2009 pledging not to raise taxes and to curtail bureaucracy and devolve power to citizens. As with every political promise, it is just always bullshit. Last month, Prime Minister Yoshihiko Noda disregarded opinion polls and allowed the breakup of his own party to push through the ministry’s decade-old plan to double the sales tax. For you see, behind closed curtains, it is always the rank & file of the bureaucracy that truly dictates the course of government.
The Ministry of Finance (MOF) in Japan has regained its former lost power. Here we have an agency that was corrupt, was in bed with the banks, and dictated to corporations that created the collapse of Japan, and now its rising to power is predicated upon the nonsense that “see things keep getting worse because they are not in control.” When I was called in by two clients in Japan in 1989 BEFORE the bubble top, in both cases they had decided to follow our model. Nippon Life and the Japanese Postal Saving Fund wanted to hedge the market. We were looking at what would have been the biggest hedging position in the history of the world – over $3 trillion that was at the time more than 50% of the US National Debt. That project was stopped by MOF under some bureaucratic idea that gee, if we hedge those portfolios, we would create the decline in the Japanese markets. So, they were ORDERED by MOF not to hedge! The loss within the first 6 months was about 40% of those portfolios. We would have saved Japan from a 26 year depression. Yes the market STILL would have declined, but managed in a rational way, the end game would have concluded within the normal 3 year period when free markets are allowed to prevail – i.e. 1929-1932.
It was bureaucrats that screwed Japan. They caused the 26 year long Japanese Depression, caused the collapse of the LDP, and now are bringing about the collapse of what was supposed to be the alternative. This new tax victory in Japan is an reverberation of the influence MOF wielded at the top in 1989. They of course merely point to their help in orchestrating the 50-fold export-led expansion in the economy between 1955 and 1990. However, that trend was by no means their creation. We see the same in all other countries as well. Global trade simply expanded largely due to the socialism in the USA that saw World War II usher in the payroll tax in America starting the rise in American labor costs. The MOF’s diminished role post 1989 they argue caused the stagnation of the two decades because bureaucrats were losing control. This is by no means true since I can speak first had and what I saw that preventing hedging based upon phone calls from MOF, not regulation that forbid it.
Politicians lack real world experience as a general rule. Look at Mr. Yoshihiko Noda in Japan whose predecessor Naoto Kan ignored the party’s no- tax pledge. Both Noda and Kan served as finance ministers in charge of the budget outlays. This new policy to double the five percent tax with the main opposition Liberal Democratic Party, whose leader is also a former finance chief, is meant to sure up the future of bureaucrats – not reverse the economy. Consumer spending accounts for about 70% of GDP in the USA. Whenever taxes are raised to support the life-style of bureaucrats that contribute NOTHING to the GDP of a nation but consumer the wealth created by the private sector, economic advancement declines. Government spends according to their goals. The private sector spends according to realistic goals. Communism fails because government is incapable to spending money wisely or planning how the economy should develop. Socialism adopted in ALL westernized economies is the same economic mistake as communism. It simply takes longer to get to the same place – bankruptcy.
The tax bill in Japan was pushed through the lower house of parliament on June 26th by Noda who judges the world purely through bureaucratic perspectives. People who are formerly within the bureaucracy will never reform it. To do so means they have to admit that the bureaucracy is consuming wealth. They have too many close friends plus they do not believe the bureaucracy is the problem – it is always the taxpayer fails to pay enough. Until people from OUTSIDE politics and the bureaucracy come to power, there is no hope of saving anything. You are asking someone to admit that their whole life has been a joke.
This new tax in Japan has resulted in the resignation of about 50 lawmakers led by power broker Ichiro Ozawa, who is the veteran Japanese lawmaker who engineered the ruling party’s rise to power. To ensure he would be tainted goods, his political enemies went after him criminally accusing him of a political funding scandal. He was acquitted, but that mere charging was good enough to ensure his chances of becoming prime minister are now zero. The scandal also cost Ozawa his membership in the ruling Democratic Party of Japan, though he continued to wield great influence as a political power broker. The acquittal means his membership could be reinstated, allowing him to exert even more influence.
The almost 70-year-old politician was charged with overseeing false accounting by his former aides in a murky 2004 land deal. Prosecutors claimed the three aides, who were convicted and have since appealed, acted under Ozawa’s orders, but the Tokyo District Court said it found no evidence of that. Ozawa’s trial also caught attention as it revealed that prosecutors had fabricated one of the aides’ remarks in interrogation documents. The court later excluded some prosecution documents from the case, leaving prosecutors to make the case without hard evidence showing Ozawa’s role.
Ichiro Ozawa is a career politician, albeit a smart one. He served on key parliamentary committees for a very lob time before his first ministerial appointment was in 1985 when he took on the Home Affairs portfolio under Yasuhiro Nakasone. Nakasone was impressed with his negotiation skills in getting ironically the consumption tax legislation passed initially. These backroom skills are what led to his election as LDP Secretary General in 1989. However, rival factions began to turn against him within the LDP, and he turned to Tsutomu Hata and his followers. Hata and Ozawa had been the leading reformers in the Takeshita faction. They attached themselves to powerful patriarch Shin Kanemaru. When Kanemaru was implicated in a corruption scandal in 1992, this opened the door to politically attack Ozawa. In 1993, after realizing that Kanemaru’s impending trial would provide ample ammunition for his critics, Ozawa made an unexpected move — he and Hata formed the splinter Japan Renewal Party, seriously destabilizing the LDP. This is how the LDP lost power after its 38–year dominance of Japanese politics. Keep in mind that the politics in Japan have been so corrupt, they create corruption scandal only to get rid of certain people. The bureaucracy is part of that process to use the criminal prosecuting power for political gain.
Consequently, it was Ozawa who played a key role in the new party’s historic rise to power in 2009, defeating the LDP long-ruling conservatives. Nonetheless, Ozawa is unpopular with voters and has a negative image as an old-style, wheeling and dealing “shadow shogun” as he has been called. He still has a loyal core of supporters, many of them young politicians whose careers he helped launch. Ichiro Ozawa orchestrated the resignation play, but just retained enough conserving the majority for the current government. To illustrate the corruption inherent within government since the bureaucrats have done a reverse takeover of the democratic elected process, Nikkei newspaper reported that MOF bureaucrats were actually told to avoid drawing attention to themselves by drinking within the ministry building rather than out on the town as they do every night or even smiling in public indicating their successful coup.
Like Goldman Sachs has infiltrated governments worldwide, in Japan, it is MOF that is close to the bankers and it is MOF that has always controlled government. Kenji Eda to publish a book in March entitled: “Finance Ministry Mind Control: The frightening methods of finance ministry bureaucrats, who brainwashed Prime Minister Noda to engineer the tax increase.” This indicates the truly realization of what is taking place in Japan and why Japan will collapse into a final 26 year economic low.
MOF recruits many senior officials from the elite University of Tokyo law department. It history goes back to the Meiji restoration period of the 19th century. Unlike the military and conglomerates that were broken up by the postwar U.S. occupation, MOF was left almost untouched until 1998. This is the bastion of corruption and power-broking in Japan. The last two head of state are from this agency just as we say Robert Rubin and then Hank Paulson US Treasury Secretaries come from Goldman Sachs and (1) eliminated Glass-Steagall allowing for wild proprietary trading by banks, and (2) when the lost it again, Paulson orchestrated a $700 billion bailout only to save the corrupt banks that did nothing to help the economy. When MOF was stripped of its banking supervision role in 1998, it lost much of its influence over the Bank of Japan. But it is now rising again.
It is MOF’s sales tax increase that will most likely now cost Noda the next election. Until Japan gets rid of the politicians linked to MOF, there will never be any hope to reversing the economic trend in Japan. The next election will be held by August 2013. The polls conducted by the Asahi newspaper on June 28th illustrated already a 52% opposition the bill. In the case of Princeton Economics, MOF issued a letter saying that $30 billion in notes had been sold and $10 billion was supposed to be on deposit at Republic Bank in New York. They sent their letter to the Federal Reserve many believe intentionally for retaliating against our forecast delivered live in Tokyo that the LDP would lose power and that meant also MOF. When MOF lost power in 1998, it appears they deliberately lied to the Federal Reserve and then tried to pretend it was a mistake. For an agency in charge of manipulating the yen, it was not plausible to have made a decimal error in a calculation of this magnitude. They caused Republic to panic, who then stole about $1 billion grabbing what they thought they could and ran to the US authorities who simply filed charges without ever picking up the phone to speak to a single note-holder. To then find out that MOF then said sorry, they made a mistake on the calculation of the yen to the dollar and it was off on a decimal place was not plausible. They turned $3 billion in notes into $30 billion – 3 time the value of Republic Nstional Bsnk thst was sold to HSBC for $10 billion. When the dust settled, it turned out to be $3 billion sold, only $1 billion outstanding, and HSBC/Republic grabbed that, had to plead guilty and return the funds to receiver 100% immunity from the US government.
It was widely believed among our clients in Japan that MOF was deliberately trying to stop Princeton forecasts that they too did not like in retaliation for our forecast that the LDP would lose & MOF with it. Just as the government got caught manufacturing evidence in the trial of Ozawa, they did the same claiming MOF simply made a calculation error. If that is true, then MOF is in charge to manipulating the yen. Unbelievable that such incompetence could ever exist that high up in the bureaucracy (see Appendix).
It is unfortunate that MOF is so determined to control Japan and cannot be reined in. Noda succeeded Kan as prime minister in September after serving as finance minister for 15 months. Kan spent six months as finance chief before becoming premier in June 2010, and began to push the consumption tax policy as Europe’s debt crisis heightened focus on Japan’s sovereign debt, which is forecast to exceed 1 quadrillion yen ($12.5 trillion) next year. Of course the bond holders always what tighter fiscal policy and higher taxes so they can extract from the people more of their wealth for personal gain. MOF is trying to help the debt holders at the expense of the economy and the people as always.
MOF is becoming much more aggressive in restraining gains in the yen that hurt exporters as well. MOF is now in the business of manipulating the currency trying to force what it wants to see over the economy and currency. MOF spent at least 14.3 trillion yen ($179 billion) last year to manipulate the yen that included 8.07 trillion yen in a single day. MOF directs the Bank of Japan instructing them to sell yen. Prior to September 2010, it was then-finance minister Noda who oversaw the very first of those actions. Therefore, we cannot expect any rational objective political management in Japan. Their focus is like the US going into 1985. The will do everything to try to stop the yen’s rise. This means they will lose a fortune.
The new MOF consumption tax will jump from 5% to 8 percent in 2014 and then10 percent in 2015. This will reduce economic growth at the expense of those lobbying MOF to help bond-holders. When the tax was last raised, at the start of the Asian financial crisis in 1997, Japan entered a 20-month recession. Tax increases reduce the economy taking money from consumers and effectively just burning it in a bonfire.
The MOF’s resurgence of control over the Japanese economy is anti-democratic, furthers unelected dictatorship and the political faces are merely rank and file members of MOF. There is little hope for Japan. We are in the last throes of an economic melt-down that will change the political face of Japan as no one has ever believed would be possible.
The Nikkei – 225
Our long-term outlook in Japan for the NIKKEI 225 Cash Stock Index has remained bearish since 1989.95. Our long-term cyclical models show the first window of opportunity for a final major low remains that of 2013 with a possibility of extending into 2014 where we also have a Directional Change for the year. We are looking at a sharp increase in volatility starting in 2013 and running through into 2015. Volatility will rise again starting in 2018 and build into 2020, but it should remain high into 2023. It is possible that if the Nikkei fails to make new lows into 2013-2014, then it could extend the decline into 2017. Ideally, such a bear market reaches its conclusion within the 23 to 26 year window, which extends the bear market into 2015 with the top of the Economic Confidence Model. The target support lies at 6500-6100 followed by 4000-3800. This is further confirmed by our Yearly Bearish Reversals at 6957 and 4038. Therefore, reaching these price objectives within the ideal time frame will greatly enhance the prospect that the final low has at last been established.
Shanghai Technical Training Seminar
We are attempting to arrange venue for a Technical Training Conference for two days. Because this is a classroom, seating will be limited. The price per seat will be $10,000. That will include all materials. You cannot go to college or university to get a degree in Hedge Fund management. Here, Martin Armstrong, who was named “Economist of the Decade” by Equity Magazine and voted Hedge Fund Manager of the Year, will be providing the only such course available on the global economy.
This will include trading techniques, How to Trade a Panic, Cyclical Analysis, and Technical Analysis. The public funds that Armstrong traded for Deutsche Bank and Magnum increased more than 60% in 10 days during the Long-Term Capital Management Panic. So this is not theory.
Furthermore, many people can trade well with small amounts of money. Hand them a bunch, and they start to lose. Why? Trading BIG money is substantially different than SMALL where you can simply call up the broker and say SELL! With BIG money, that is not possible. You have to trade entirely different and in a strategic manner.
Reserve you seat now. We will let you know the dates & venue when available.
APPENDIX – EXHIBITS