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.