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THE
MAGNIFICENT SEVEN Background:
You say there was a rumor in 1910 about a group of investment bankers who proposed a new currency system with a uniform discount rate? Mr Nelson, I found this old sign from a private railroad car under a wagon wheel with the following numbers written on it: 40, 52, 69, 109, 176, 233, and 333. Let us go back in time to look at these numbers (i.e., long wave cycles) in the M3 Money Stock from 1980s. The Old Wild West: Charts 1 - 6 describe the Magnificent Seven as they looked when they rode thru the M3 Money Stocks from the 1980s. We are accustomed to thinking the M3 Money Stock following a linear regression trendline for long periods of time (i.e., Chart 1 and Chart 2) and this is the case. However, there has been a distinct change in the slope of the trendline from 4.6 billion per week (1981-1994) to 11.4 billion per week (1995-2004). However, the surprise finding was the very periodic oscillations (long wave weekly cycles) in the actual M3 dataset from 1981-2004. This is a possibly a significant finding – yet to be further explored. One might intuitively expect that if longwave weekly cycles existed, the result would come from oscillations in the source term (M3) itself but the fact that the oscillations are very periodic over long time-scales implies something more fundamental is taking place. There maybe a controlled and pattern behavior of “cycles” in M3 by the world Central Banking System which feed into the amplitudes of the cycles world equity markets (such cycles are also probably present in M1 and M2). The largest cycle in M3 is usually the 266-week cycle but other smaller cycles can sometimes generate larger amplitudes. If 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 as discussed in Part IV), then the “vortex source terms such as M3” should also have key longwave cycles. A comparison of the 266-week cycle in M3 versus the largest 233-week cycle in the Ten Year Bond (Chart 5) show that these cycles run nearly opposite in phase. However, a major shift in the 233-week ten year bond cycle may be taking place. The Central Bank may have been introducing significant cyclic amplitudes in M3 (via longwave weekly cycles) for decades. However, if one claims the M3 variation is simply a response to cyclic recessions such as occurred in 1981, 1990 and 2001 as a result of interest rate “jumps” with a phase lag then why do “recessions” tend to appear as a consequence of the sinusoidal behavior of M3 components as shown in Chart 6 as the cycle falls. The Magnificent Seven 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 31, 37, 52, 58, 69, 148, and 266 weekly cycles. These M3 components appear to be the “cyclic source” for most of the amplitudes of the cycles in 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. The growing amplitude of the 266-week cycle strongly suggests this a “limit cycle” in a non-chaotic system or a chaotic system close to equilibrium but slowly going unstable (enter interest rate increases from stage left). The amplitude of this 266-week cycle is now over 100 billion dollars peak to peak taking the M3 dataset at face value!? The Modern West: Chart 7 presents the predicted cyclic behavior of M3 from June 2004 thru 2007 given the present long wave weekly cycles continue in the M3 waveform. We are currently experiencing a major descent in the major cycles of M3 thru Oct 2004 (bottom). The 266-week cycle is directly related to the current market downside trends in the NYSE Composite Index according to several different Neural Nets which were run using all the frequencies of NYSE, M3, Ten Year Bond, Fed Fund Rate, Total Debt, etc. This will be discussed in a future article on the Magnificent Seven. Specifically one needs to be very cautious about being long in a market when the M3 components are falling as in the period from Feb 2005 thru June 2005 and Dec 2005 to April 2006. These may time scales may be part of future “secular bear downside waves”. If one simply assumes a linear trend in M3 in future predictions (i.e., as in Neural Nets), you may be missing “a significant oscillatory source term” from the 266-week M3 cycle which correlates highly with the NYSE Composite Index Closings, Ten Year Bond Yields, Fed Fund Rates and S&P 500 Weekly Index among many others. We expect this 266-week cycle will show up also in M1 and M2. In our next visit, we will meet with Mr JP regarding the future of the Ten Year Bond Yields!? “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 Yipie i ay Yipie i oh 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.
