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THE
MAGNIFICENT SEVEN Background:
You say there was a rumor from the 1950s about a legend of the Magnificent Seven who were hired to protect the Federal Gold shipments on the stagecoaches and trains heading West. I found this old wagon wheel Mr Alan with the numbers written on it: 52, 109, 148, 182, 233, 310, and 444. There were also tow other numbers partially scratched out which were 548 and 1470. Let us go back in time to look at these long wave cycles in the Fed Funds Rate. The Old Wild West: Charts 1 - 4 have been partially restored from the designs on the old wagon wheel and the Magnificent Seven as they looked when they rode thru the Fed Funds Rate from the 1950s. Now a wagon wheel is a circle so we should see the numbers for the Fed Rate Fund hikes and drops over decades appearing as pi = 3.14, 2*pi = 6.28, 3*pi =9.42 and 4*pi = 12.56 (but it takes about 84 weeks to 88 weeks for them to emerge). This is a novel and very significant finding. Mathematically, multiples integrals of pi (i.e., pi, 2*pi, 3*pi, and 4*pi) are the “eigenvalues” of “stable limit cycles” for a chaotic “predator-prey” (nonlinear) system of equations of economics in which the predator is the wage output and the prey is the rate of employment and the time rate of change of debt. (Reference: Steve Keen, “The Nonlinear Dynamics of Debt Deflation”, Department of Economics and Finance, The University of Western Sydney McArthur, Australia, 1998). In other words, the Federal Reserve is trying to actually control the Fed Funds Rates based on some type of economic chaotic model and the only stable “economic limit cycles” for the interest rate hikes/drops are “multiples of pi” (usually pi, 2*pi, 3*pi, or 4*pi). The Central Bank has been doing this for decades (since the advent of computers in 1950s). This implies the world Central Banks are now probably running a massively parallel computer system with all the real-time economic data (transparent to Congress, Wall Street and the public) and trying to control to stable “economic” limit cycles. Since the interest rate must be raised over a period of time (on the order of 84 weeks to 88 weeks), there is a phase lag in the dynamic response which causes the interest rate changes to “overshoot” during interest rate increases or decreases. We refer to these conditions as “bubbles” or “crashes”. The crashes occur when the Federal Reserve Banks “overshoot” and cause the economic cycle to go unstable (M3 money pumping). If allowed to continue without limit, total financial chaos would result. Therefore, the Federal Reserve Banks immediately start to drop to a lower stable limit cycle (rapidly increase Interest rates by pi and then 2*pi pr 3*pi!). This causes a “crash” in the equity markets and takes “malinvested dollars” off the world gaming tables and restores the stable economic cycle (at a lower bound). Normally the interest rate increases must occur quickly to prevent an exponential increase (due to M3 money source). However, a rapid drop in rates was necessary probably due to the events of 9.11. The historic 45-year interest rate lows were to reinitialize the economic cycles to the same baseline for all world central banks to possibly prevent a deflationary response while increasing M3. The Shootout at the OK Corral: The two-dimensional “limit cycles” or “weekly long-wave cycles” presented in the Magnificent Seven are actually n-dimensional waves of an “expanding vortex of money in circulation around the world”. The source of the vortex is the Federal Reserve M3 money pump which goes 24/7 and has no practical limits. There are very well-defined oscillations (long-term weekly cycles) in M3 Money Stock including 18, 31, 37, 52, 176, 266, and 333 week cycles. These appear to be the “source” for the amplitudes of the cycles in all major world indexes (it feeds the increasing amplitudes in world indices). Thus, we can speak of the “vorticity of money” in circulation worldwide as it travels from node to node. It appears that derivatives were introduced to further “stabilize” economic shocks as well as achieve major control over world commodity prices and limit cycles. A global financial fiat currency system cannot practically exist without these constant jumping from lower to higher “interest limit cycles” (or vice versa) thru Fed Funds Rate hikes or drops. In reality, since these “interest rate jumps” cannot take place instantaneously, there is no stable limit cycle but only a “rough approximation” to one with significant phase lags. With trillions at stake, you better know what you are doing in this highly nonlinear environment and it appears the Central Banks have far better economic “cycle” control than may have been envisioned to date. They have been doing it for decades. With the advent of supercomputers, it would appear the Central banks have learned to manage the “world economic vortex of money”. This is a high-wire act like nothing anybody has ever seen or thought possible. The reality of what is really going on with interest rate changes may be very far removed from the media hype of “ Mr Alan Goes to Washington Twice a Year”. It is a very sophisticated economic system being orchestrated by the Central Banks with a high-degree of feedback control loops to take trillions off the table at the right timing. The largest cycle in M3 is the 266-week cycle and it affects the major cycle amplitudes in Bond Market, DJIA, Dow Transports, Dow Utilities, Nikkei, NASDAQ S&P 500, and NYSE Composite Index. It appears the reason for the “84 week to 88-week” cycle in Fed Funds Rates is this is about one-half the period of the largest weekly cycle in the S&P 500, DJIA, Dow Transports, and NYSE Composite Index (among many others). The increase in the Fed Funds Rate is usually 180-degrees out of phase with this 176-week cycle in the equity markets. That is, when the 176-week cycle tops and heads downward (downtrend in the major market indices), the Fed Funds Rate starts significantly upward (this major interest-rate cycle is now starting again with the 176-week cycle topping in the S&P 500 in Nov 2004!). As the 176 week cycle hits its major downward acceleration (Oct 2005), expect to see some significant moves in interest rates (0.5 points) occurring if past interest rate patterns hold. Charts 5-6 shows there are two well-defined groups of blue-chip stocks which travel together on the 176-weekly cycle but one group is 180-degrees out of phase with the other group. The positive-phase group is the following current blue chips: Intel, Amat, Boeing, Exxon, Cisco, Hewlett, Altria, GE, Home Depot and Alcoa. The negative- phase group is GM, GE, Disney, CAT, Honeywell, Apple, and Johnson & Johnson. The following top institutional holders of these stocks (and all of the Top 30 DJIA blue chips) are Barclays Bank Plc, Deutche Bank Aktienges, Vanguard Group, State Street Corp, Goldman Sachs, Mellon Bank, Northern Trust Corp, Southeastern Asset Management, Capital Res & Mgmt, UBS Securities, Fidelity Mgmt Res Corp, Wells Fargo, Axa, Dresdner Rcm Global Investment, Wellington Management, and Citigroup. Of course, these institutions are “place-holders” for the actual stockholders. It is possible these two “wave-packets” could be used to control the DJIA major market moves. The Modern West: Chart 7 presents the Fed Fund Rate predictions thru 2007 given the present long wave weekly cycles continue in the waveform. We are expecting a “pi” or “2*pi” increase coming in interest rates from Oct 2005 thru June 2007 just as the world indices are in a major secular bear downside move. This script for the Magnificent Seven looks like a remake of the “1987” crash and you can rewrite this new script in your sleep. After the election is over, the Fed Reserve banks will “discover” that inflation is a major problem sometime (June /Oct 2005) and there will be significant “jumps” in the Fed Funds Rate timed with sliding worldwide markets. This is a coming dangerous time in world markets as it is not clear that any stable “limit cycle” can be yet achieved in a high M3 money pump environment. There is an analogous “hydrodynamic” analogy in vortex flows in which a complicated instability occurs (same exact type of “chaos equations” as economic theory) in which a “vortex breakdown” occurs and the vortex disappears or “bursts”. In economics, the interest on the debt overwhelms the economic cycles. The Fiat Currency Game: This is a strange game Mr Alan. In the end there are no winners and whoever makes the first move loses. “I’m afraid, Mr Alan The Fed Reserve Bank System made the first move when it started printing the fiat currency”. I thought I saw Mr Alan standing in the water off Jekyll Island holding up a sea shell. He was saying to a group of men in black suits:” Gentlemen, I give you the currency of the New World Order” and the date on the sea shell was 2051. Will it really take that long!? “Ghost Riders in the Sky” (Words (modified) and Music by Stan Jones (1949)): As the riders
loped on by him he heard one call his name Ghost Riders in the Sky.”
DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. CONTACT
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The
Magnificent Seven is a chronicle about the adventures of Seven
Weekly Cycles who rode onto the western scene many decades ago
to save a poor small village from being raided by a group of
vicious bandits.
