American `genius' is trampled in this dangerous bull market

September 19, 1999|By Robert Reno

BEFORE HE was arrested this past week, Martin A. Armstrong was scheduled to address the Canadian Society of Technical Analysts next month.

A sought-after speaker and self-proclaimed investment genius whose conferences featured celebrities like Margaret Thatcher, Mr. Armstrong owned an economic model -- or so his firm, Princeton Economics International, boasted -- that had correctly forecast the stock market crash of 1987, the bond market collapse of 1994 and the disaster that befell the Japanese yen after 1995. His firm claimed annual investment returns of 28 percent since 1992.

He is now accused of bilking sophisticated Japanese investors and corporations out of $950 million. His lawyer helpfully suggested that these were merely "honest, non-criminal losses."

It's hard to guess which was more mortifying to a man such as Mr. Armstrong: being arrested or being described by his own lawyer as a man who could honestly and non-criminally lose so much money right in the middle of the greatest bull market in the history of the world.

Prosecutors said Mr. Armstrong was able to operate as long as he did because he got help from certain employees at a division of Republic National Bank who would use bank stationery to report to his investors that their money was doing well when in fact it was going up the chimney. Then officials of the Japanese Financial Supervisory Agency showed up at Mr. Armstrong's Tokyo office for a surprise audit of its accounts.

On the Web

Mr. Armstrong maintained an elaborate Web site to which you could go for all manner of know-it-all pronouncements. One, headed "What the Press Doesn't Tell You About This Bull Market in Stocks," advised that the "first and most important rule about investing is to know what you are buying and why!" To normal people this sounds like drivel, but in the investment world there are people who lap this stuff up.

Anybody who professes to know the "first and most important rule about investing" probably doesn't know the first and most important rule of crossing the street or handling an elephant, which is, of course, "don't get run over."

Buyer beware

The Japanese investors certainly thought they knew what they were buying and why when they decided to do business with the American with uncommon persuasive powers.

According to the Securities and Exchange Commission, Mr. Armstrong took their money and, among his other losses, blew $295 million trading in the yen.

This can't have been what the trusting Japanese had in mind when they made dollar investments with this smooth talker from Princeton who was going to take their money to the safety of America and make it multiply.

Robert Reno is a Newsday columnist.

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