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THE
MAGNIFICENT SEVEN Background:
You say there was a rumor from 1895 about a legendary investment banker who proposed a syndicate of investors that would sell gold coin to the US Treasury paid for with newly issued bonds to prevent a financial crisis in the US Banking System? It was a brilliant solution as it provided not only an economic way out but also a politically expedient one. The US Government was never to be the same and continues issuing bonds and selling its debt around the world to this day. Mr JP, I found this retired ten-year bond under a wagon wheel with the numbers written on it: 52, 109, 148, 182, 233, 310, and 444. Let us go back in time to look at these long wave cycles in the Ten Year Treasury Bond Index (^TNX) on the Chicago Board Options Exchange. The Old Wild West: Charts 1 - 4 show the Magnificent Seven as they looked when they rode thru the Ten Year Treasury Bond Index (^TNX) (detrended) from the 1960s. The filter sum of the seven largest cycles is a good match to the overall Ten Year Treasury Bond Index waveform for decades but the amplitudes of the cycles change gradually over time and any prediction would need periodic updates. Ten Year Treasury Bonds might be of interest to insurance companies but are risky for most investors at the present time. This Index has been trading in a range from 3.8% to 4.9% for about the last two years. 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 (and its oscillations) which goes 24/7 and has no practical limits. There are very well-defined oscillations (long-term weekly cycles) in the Ten Year Treasury Bond Yield Index including 40, 52, 69, 109, 176, 233, and 333 week cycles. The M3 longwave oscillations appear to be the “source” for the amplitudes of the cycles in the Ten Year Treasury Bond Index. A key Ten Year Treasury Bond cycle is the 233-week cycle. Charts 5 shows the 233-week cycle in the Ten Year Treasury Bond Index. This cycle is actually opposed in phasing by a 266-week cycle in M3 Money Stocks and the highs and lows in the cycle may determine in part when Fed Fund Rate moves are required to satisfy the “bond vigilantes”. There was a really strange “shift” in this cycle in March 1989. In 1989, the World Bank offered the first-ever "global bond," a new type of security designed to appeal to investors internationally so perhaps the shift was “introduced” to correspond with this product. The concept caught on, and since then, the World Bank has refined and expanded its global bond products. Also in 1989, the Brady Plan was introduced which allowed Mexico and South American countries to swap 49% of their loans for discount bonds (forgiving part of their debt). Costa Rico was the first deal in 1989 followed by Venezuela (1990), Uruguay (1991), Argentina (1992), and Brazil (1992). By May 1994, 18 countries had agreed to Brady deals forgiving $60 billion of debt and representing about $190 billion in bank claims. The typical deal led to about 30 to 35 percent forgiveness of a country’s debt (but California’s debt is a big deal which cannot be forgiven!?). The Modern West: Chart 6 presents the Ten Year Bond Yield cyclic predictions thru 2005 given the present long wave weekly cycles continue in the waveform. The waveform shows a steady-state oscillation around a mean value of 4.2 thru Oct 2005. One would have to “add” any Fed Fund Rate increases to this waveform to get the actual change in Ten Year Bond Yields. Based upon the predicted changes in the Fed Fund Rate for 2005-2007 (see Part V), the expected Ten Year Treasury Bond Yields will increase along a new slope after Oct 2005 with an expected yield of 7.38 per cent by the end of 2007. The predicted change in the Ten Year Treasury Bond Yield in April 2005 of a “decrease” of 0.5% strongly suggests the Fed Fund rate may increase by this amount to provide to keep the actual Ten Year Bond Yield slope slightly positive and this may become a significant indicator of future Fed Rate changes. In fact, Fed Fund Rate changes depend strongly on the 266-week cycle in the M3 and so do the Ten Bond Yields (cycles) based on some preliminary Neural Net simulations. “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.
