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THE
MAGNIFICENT SEVEN Background:
You say there was a rumor from 1922 about a man who said there was a 40-month business cycle?! Well that reminds me of something I saw once in wheat prices and the S&P 500. There is also an 86-month cycle in wheat price as well so maybe the 40-month may be a harmonic of some larger monthly (commodity) cycles. I found these sketches on the back of an old bushel basket about a future deflation coming after 2009 in wheat prices. The Old Wheat Rumor: Charts 1 - 2 show the Magnificent Seven as they may have looked when they rode thru wheat from the 1940s. The filter sum of the seven largest cycles is a good match to the wheat price variations from the 1940s. The largest seven monthly cycles are the 31, 38, 45, 65, 86, 180, 308 monthly cycles. The amplitude of the 86-month cycles grew dramatically during the money expansion from the 1970s and later the “Internet Era”. Chart 1 shows comparison fit from the actual wheat prices (detrended) from the 1940s versus the seven largest monthly cycles found in the wheat prices. The cycles have grown in amplitude and there has been a shift in the phasing over time. Chart 2 shows the graph of the five largest monthly cycles in wheat prices. The largest cycle in wheat prices is currently the 86-month (biblical seven-year cycle?). The cycles have been consistent in phase for many decades!? The Shootout at the CBOT: Charts 3 and 4 show some salient features about the longwave monthly cycles present in the closing wheat prices from 1941-2004. There are very well-defined oscillations (long-term monthly cycles) in the wheat prices from the 1940s (and much earlier) and one could expect to find similar or identical cycles in many other commodities. There will be future articles on other commodities including gold. Chart 3 shows a comparison of the largest cycle in the wheat prices (86-month) with the largest cycle in the S&P 500 Index which is the 82-month cycle. Note the average of these two cycles is 84-months or the biblical seven year cycle of feast and famine. Since the 1970s, these two major cycles are almost identically out of phase. The chart is not even normalized. The amplitude of the 82-month S&P 500 cycle is in S&P points and the amplitude for the 86-month wheat prices is in cents per bushel. Yet, these two “diverse” cycles fit the same graph!? The 86-month wheat cycle is almost identically out of phase with the S&P 500 Index cycle. Let’s make a wild guess – “somebody” has been switching between the S&P 500, DJIA, and NYSE and “commodities” for decades as one cycle crosses the other cycle!? So who sowed the tares with the wheat? So why is a major agricultural commodity’s largest cycle (wheat) exactly out of phase with the major cycle in equity markets (S&P 500) if the markets are really “random” all these passing decades? Chart 4 shows a 45-month cycle in the wheat prices. The cycle looks like it was reinitialized in 1961 until early 1974 when it peaked with the “Oil Crisis in 1974”!? Thus, there is a well-defined “40-month” type of cycle in this commodity as well as many others as well as in the S&P 500 Index (333-week cycle). However, the 86-month cycle appears to control the overall waveform in long term wheat prices because of its amplitude. There is also a large cycle at 308-months which suggest there is something to K-Cycles. We will examine this in an upcoming article on the monthly S&P 500 Index cycles. The “Future of Wheat”: Charts 5 presents the wheat cyclic predictions thru 2014 given the present long wave monthly cycles continue in the waveform. One period of the current largest cycle is seven years! This prediction assumes the wheat trend line is basically neutral as it has been for decades. The wheat prices will be falling through July 2005 followed by a rally thru March 2006 (consistent with S&P 500 Index falling at the same time). The battle against deflation has not yet been won by the Federal Reserve – it isn’t close to breaking even so it better keep printing money 24/7 and raise those interest rates. There maybe a major rally coming in wheat prices from Sept 2007 through July 2009 (how about that China?). Just as the Federal Reserve Banks will be finally claiming victory over “deflation” in 2009 - something is predicted to go very wrong. The Mayan Bear is going to eat the Federal Reserve Banks’ lunch and dinner as well (dinner will be concluded in 2014 at the end of the “Supercycle Secular Bear Market”). Stay off the main trail, partner, and stick to the high ridge where you can see everything! Funny thing Mr G, the more you print - the bigger the Mayan Bear becomes. Sir, step away from the bear! Do not feed that Secular Bear! “Ghost Riders in the Sky”: “……………Come and see. And I beheld, and lo a black horse; and he that sat on him had a pair of balances in his hand. And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.“ 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.
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