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THE
MAGNIFICENT SEVEN Background:
You say there was a Russian economist who said there are longwave economic cycles that perhaps could be 50 to 60 years in length? Basically, he claimed there was a longwave cycle of debt repudiation and contraction of global monetary base. “Well, Mr Nikolai, in that case we have some debt to repudiate ourselves in the Old West. Take a look at this old Mayan parchment I found on a stagecoach. What do you make of it? The Old Wild West: Charts 1 - 3 show the Magnificent Seven as they might have looked when they rode thru the S&P 500 Monthly Index (^SPZ) from the 1870s to the present day. The filter sum of the seven largest cycles in the S&P 500 Monthly Index from the 1870s is compared to the actual monthly closings. The definition or match is not as good as with the weekly cycles but it gives a long term view. Charts 4-5 suggest there is something to K-Cycles being present in the S&P 500 Index. While there was a regular cycle at 54 years, the largest cycle (by 4X) was the 33-year cycle. This cycle formed a top in March 2002 and is starting downwards. It will reach its maximum downward acceleration around July 2010. In the past, the downward portion of the cycle has resulted in worldwide conflicts as it crossed the x-axis (timeline). This would correspond to the upcoming period from 2010 to about 2019 and is consistent with a coming possible deflationary cycle in commodities (but not necessarily anything to do with a depression) in this period (see Part IX on Wheat Prices). Charts 6-8 present a comparison of the 82-Month Cycle versus the S&P “crashes” from 1870s thru 2004. This is where it gets interesting. The cycle existed prior to the formation of the Federal Reserve System and shows peaks in this cycle that coincide with some type of “banking crisis” prior to 1913. This cycle also traces back to The 82-month cycle shows a “strange shift” in 1905 which results the “banking crisis of 1909”. However, the cycle did not grow in amplitude after the 1881 “3% bond bailout”. Enter the Federal Reserve System in 1913, and the fiat money starts pumping and the amplitude of the 82-month cycle increases significantly. From 1916 thru the late 1970s, the top of this 82-month cycle virtually coincides with every major sell-off or “crash” in the S&P including the crash of 2000. Alternatively, the “1987 Crash” occurred when this cycle crosses the x-axis (maximum downward acceleration). Funny thing about this cycle, after ninety-years it still continues almost unabated with no comment from the Federal Reserve Banks or Government economists about its existence despite trillions being extracted from the “markets” with this “white horse”. The same 82-month to 84-month cycle in major commodities such as wheat is almost exactly out of phase with the S&P 500 cycle. This sets-up switching between equities and commodities in each seven-year period as well as “shorting” each market at the appropriate time. It probably has been going on for decades – amazing! The 84-month cycle in wheat exists in the yearly closing prices going back to the 1300s (future article). The Shootout at the OK Corral: Charts 9 shows the Magnificent Seven as they might look riding thru Dodge from 2005-2008. Rumor has it they like to show up at the OK Corral in October but this chart shows they could come by July 2005 as a possibility. Of course, nobody really knows if they exist or they are just “Ghost Riders In The Sky”. The prediction for the S&P 500 Monthly Index agrees in principle with the prediction for the S&P 500 Weekly Index for 2005/2006. The Monthly S&P 500 prediction shows five waves downward (sounds vaguely familiar) with a bottom in early 2008 (just in time for a “big rally” into the Chinese Olympics of 2008 leading to a possible mega-top in 2009/2010). There is also some symmetry as regards the dates the waves start downward. The top (may just be the top of the current downward channel or breaking above it) – hey who stopped the presses on M3 in July? The lack of volatility noted in the S&P 500 Index may well be due to the topping of all these major cycles as noted in this study (i.e., the crest maybe forming of a coming tsunami and the markets are approaching the huge (chaotic) top as in a long swell (just don’t look down)). The formation of the downside move in continuous waves strongly suggests this is a long term secular bear waveform down and propagating well into 2010 after it starts! It is believed we maybe currently witnessing the formation of the “right shoulder” of these major indices (i.e., a huge Head and Shoulders formation that started in 1995). This will depend on continuous M1, M3 pumping of these longwave cycle amplitudes into fall of 2005 to achieve the predicted “Right Shoulder Formation. This “one-act play” has been seen before in 1987 and 1999. The sudden deceleration of M3 forming the “right shoulder” and the coming acceleration in the 176-week M3 cycle and 266-week M3 cycle to pump the markets to their final tops – now it becomes a dangerous game. The Central Banks are not trying to prevent a worldwide crash of markets but it appears they are trying to orchestrate one leading into April-Oct 2005 timeframe. Ultimately, the timing is in their hands as we probably do not know the real M1, M3 numbers but are only measuring a reflection of M3 into the world equity markets. There are probably multi-trillion plays coming in this market with this kind of predicted volatility but just maybe we have seen a glimpse their “hole cards” (“Ghost Riders in the Sky”). The coming downside waveforms resemble a three mega-wave downside move possibly propagating well into 2010 before it finally bottoms (see prior article). If this develops, it is a full-blown Secular (Mayan) Bear coming that will eat your credit cards and your lunch if you stay for the duration. It is coming in all the world markets (2005/2006) with perhaps a later phasing in Asia. The final tops will be very chaotic and impossible to really time. If the Central Banks cannot successfully pump the 176-week and 266-week cycles much beyond Nov 2004, the markets may start to break down rapidly. I have never seen anything like this before. This situation will require monitoring as the ominous “weather front” continues to develop and approach worldwide. This situation represents a “Code Red” in this type of analysis from past experience. Whether you understand the information being presented or not or totally disagree with it, this is not a drill – give serious consideration to protecting your major mutual fund and 401(k) investments now and consider slowly purchasing gold/silver coins or bullion on dips as part of your portfolio. It is possible that massive manipulation of M1, M3 can provide a softer landing but the cycle dynamics appear to be unstable and manipulated going into Nov 2004. You can stay if you want to partner, but as for me where is that stagecoach to Purgatory? “Ghost Riders in the Sky” ………
and behold a white horse: and he that sat on him had a bow; and
a crown was given unto him: and he went forth conquering, and to
conquer. 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 also chronicle about the adventures of
Seven Monthly 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.
