For the last few months, I was
studying forecasting and predictions. I studied a few models like ARIMA and
Smoothing and Winter Holt models, and with the use of few data from store sales
prediction to future price predictions I used to play and it’s fun!
Being in an investment field for
more than 6 years, I never found interesting to predict or forecast stock shares
prices. My belief was that share prices or equity markets can’t be predicted
because the price is a reflection of market information and events.
Inequity markets, I firmly
believe that it works in cycles, but never found something like this before. I
am going to share a few insights from the original work and study done by Mr.
Martin Armstrong.
In the study, Mr. Armstrong
discovered global business cycles. He studied financial pattern between
1683 and 1907. And discovered panic waves yielding 8.6 years. Means 8.6 years of financial
event occurred. Now, interestingly these patterns are shocking because when he
multiplied it with the numbers of days in a year (leap year) 365.25, the value
came to 8.653 * 365.25 = 3146. 769. It was exactly pi * 1000. A pi is a
significant number in math.
Now, six small waves of 8.6 years
created one full cycle of 51.6 years. Assume that the red line covers 51.6 years and the blue line covers 8.6 years.
NOTE: Before, moving forward one
should know a few important historic financial panic events.
If we take 1929 (the Great
depression) as the base year and let’s create a chart.
In this, 1929 is the base year and
1929 + 51.6 = ~ 1980. In 1980, the US economy was in a deep recession suffering
from high inflation.
Now, here, the original study gave six
small cycles (blue line) to complete one big cycle (red cycle), however, I took
4 tipping points in one big business cycle.
So, I divided 51.6/4 = 12.9 and I
came to a point at 12.9 years (shown as *) in the chart.
For simplicity, I gave alphabetically
letters from A to I. Now, each letter is
at a distance of 12.9 years.
Now, take historic events for each
alphabetic letter,
(Years are approximate to
calculation)
A: 1929 – The great depression
B: 1942 – Time of World War 2
C: 1955 –
D: 1967 –
E: 1980 – The US economy in deep
recession and high inflation
F: 1993 – In 1990 Japan bubble
burst and in 1997 Asian crisis
G: 2006-7 – Subprime crisis
H: 2019-20 – Trade Wars
I: 2032 -
My 12.9 years breakup is little
different than Mr. Armstrong’s study, as I mentioned I divided one big cycle of
51.6 years into 4 financial tipping points.
In this view, I have taken only a big cycle, however, there are smalls cycle patterns also. But, the reason to
write this blog is to raise alarm, that we are at the tipping point of a big
financial event. As we have seen in the past, somehow pieces are falling
in line, it may be due to politics, bad decisions, greed, assets bubbles,
subprime, etc, but somehow the pieces are taking place ever time. In the future too,
we don’t know which piece falls apart and financial pain triggers. But it does
exist.
Based on the original study and
thought process, it also says that the peak of one nation may be low for another
nation. Which, I believe the slowdown in Western economies could be gain in Asian
economies. Mr. Armstrong also explains about intensity and volatility in his
study, which answers the question, why events do not occur at exact same
time! And why every point in history and the coming future will not be exact time
(year). However, Mr. Armstrong’s The Economic Confidence Model gives exact dates
at 2.15 years of intervals.
This article is not to influence
any individual or scare any investor. But, to create awareness and make a difference
by being on the right side of the business cycle.
