The Kabushiki Shijo Shinbun

November 20, 1997

Investment Seminar

by Martin A. Armstrong, Chairman of Princeton Economic Institute Inc.

The Globe: 1998 Will Be a “Turning Point”

Japan: Tax Reform Holds the Key to the Future

Mr. Martin A. Armstrong, Chairman of Princeton Economic Institute Inc. in the U.S. held an investment seminar on Nov. 18 in Tokyo. He is a market analyst well know worldwide for his forecast by using Artificial Intelligence Computers. Having accurately forecasted both “Black Monday” in the U.S. and the collapse of the Japanese bubble economy, he is quite influential within the financial market.

Seminar Summary

• The epicenter of confusion in the world economy lies in the European market. Europe is proceeding with the introduction of the single currency EURO as from 1999 but the financial market judges that EMU will not work well and capital is moving out of Europe, particularly to the U.S., causing volatility in the world financial markets.
• When we see the world currency market through US Dollar movements, every 18 years we have had a major turning point since 1870. The last time was in 1985. It is conceivable that, by 2003, the next turning point, the global currency system will shift to a fixed exchange rate mechanism in whatever form. In the meantime, we will have a phase of a major change in the world economy beyond June 1998. The Japanese yen could decline to the 240.00 level going into 2003.
• Although the Japanese economy is currently in a similar phase to that of the U.S. economy around 1932 during the Great Depression, the Japanese market will not collapse even if it enters a bear market. A pessimistic observation rather becomes a sign for a shift in a market trend. In the Nikkei 225 can not close above 17,900 on a weekly basis going into the first two weeks of December, we can assume a declining market into the next year. A year-end close below 12,882 could move it down to 9,700 next year. If the Nikkei 225 consolidates holding the November low and rallies into January, it is conceivable that it will enter a declining market thereafter. In any case, the Nikkei 225 could hit its bottom in March/April or June/July. A substantial decline causes a substantial gain thereafter.
• The issue of “tax reform” is a key to the future market in Japan. Taxation system issues have created worldwide arguments. If drastic tax reform is not conducted in Japan, a bear market is expected to continue into 2003. From now on, the marketplace will pressure politicians and political reform in Japan will be realized by market demands.
• In the U.S., the present bull market will continue until 2003 with a possibility of the Dow reaching a high at 17,000. This is a development which could occur if the market remains in a consolidation phase into early next year where the Dow does not make a new high. It can also be assumed that continued capital inflows to the U.S. would cause the Dow to hit 12,000 by June/July of next year. In this case, the stock price will enter a correction phase and an eventual serious decline is also conceivable.
• Asian markets are assumed to move to hit their bottoms in the first half of 1998 and, thereafter, to continue their recovery in accordance with their economic growth. Meanwhile, it is also expected that European currencies will suffer from currency turmoil into 2003 like Asia has experienced this year.