Barclay T.Leib – Measuring Financial Time The Magic of Pi

“This analysis originally appeared Feb 25, 2001 on Sandspring.com. It is a long term look at cyclical equity market rhythms, but now four months old, it is also slightly dated in parts. Specifically, when Mr. Leib’s $294.50 Fibonacci gold target mentioned in the article was reached, he advised to book profits and turned short-term neutral gold.”

Michael Alexander does a remarkable job dispelling the notion of stock cycles (Writers Club Press. iUniverse.com. 2000) “the best time to buy stocks is always now because stocks in the long run always go up.” He starts with statistical history and shows that the beginning valuation levels are not significant. of 2000, “there is a 75% chance of negative capital gains return over the next 20 years,” You can also find out more about a “zero percent chance of the S&P 500 returning even 15% over the next five years.”

The recent drubbing of the S&P 500, Alexander looks to have been singularly prescient. It’s too bad that book publishers take so long for good copy to be bound.

In the language of Alexander is a true academic who divides the equity market behavior itself into two phases – a “monetary” One and a “real” One — This can be taken in four basic permutations.

1) High inflation, high real earnings
– generally sideways periods of Market chop

2) Low inflation and high real earnings
– Periods of market boom

3) Low inflation and low real earnings
– Periods of Booming bond markets and deflation/depression

4) High inflation and low real earnings
– Stagflationary Periods of Equity market

Alexander explains that earnings growth in the U.S. was virtually the same over the 17-year period between 1965-1982 as it was between 1982-1999. of equities during this first of These periods were marked by negative inflationary monetary conditions. The latter period, however, saw markets boom. of A better monetary environment.

Alexander also compares the times of 1929-1948 with that of 1948-1965. He found that although monetary conditions were the same in both periods the real earnings were drastically different in the two periods. The first period saw low real earnings and low inflation. This resulted in a bull market for stocks rather than bonds. The bull market was once more strong after the second period of low inflation and high real earning.

All of this is fine and dandy, but Alexander seems to overlook the obvious periodicity of These periods are roughly 17 years long. He does mention that the troughs of U.S. inflationary periods tend not to be spaced an averaging of 51 years (interestingly 3 x 17) and he shows this nice long-term chart of U.S. Price Trends:

Source: Stock Cycles by Michael Alexander

Notice that the average 51-Year inflationary trough continues, 1949 + 51 Years = 2000, so inflationary tendencies should already be in the upswing — as it is. This suggests that equities are likely to experience a repeat. of 1965-1982 type chop performance as inflation starts affecting earnings growth. It means that earnings growth will slow down if it is not reported daily by the newspapers. of It is possible for a stagflationary to occur late.

Let’s take a closer glance at this 17-Alexander so skillfully discusses the year cycle, but fails to expand on it. We believe it to be a 17.2-Year cycle. Why 17.2 Years? Let’s start with the work of Martin Armstrong discovered a cycle by measuring the distance between market panics over the 19th century and the 20th century. He called it the Princeton Economic Confidence Interval. of 8.6 years. He believed that there were multiple 8.6-year cycles in the markets that build in intensity to form long-wave of Economic activity measured 51.6 years.

8.6 years now equates to 3.141 days which is pretty close to its mathematical value of pi (3.14159) is multiplied by a thousand. Twice pi times 1000 equals 6,283 days, or 17.2 years.

Download immediately Barclay T.Leib – Measuring Financial Time The Magic of Pi

Remember the equation from grade school?

2 ** r = the circumference of A circle

Let’s say that r, or the radius is equal to a base unit. of 1. This equation would then reduce to just 2 *, or in our thought process, the circumference of A circle that equates to the completion of One complete cycle. It’s pretty neat, huh? Concepts like the circumference calculation are not difficult to understand. of A circle holds in the real world of Geometry is a great tool for financial planning. of Wall Street?

This leads to the following hypothesis:
Get Measuring Financial Time The Magic of Pi – Barclay T.Leib Only $27

While the magnitude of The rules govern both up and down price movements in equity markets. of the Fibonacci Golden Ratio .618 (and its reciprocal 1.618) as derived from the Fibonacci Number Sequence 1,1,2,3,5,8,13,21…., the duration of economic cycles is governed not as much by Fibonacci, but by the cycle 2 *.

Anecdotal evidence supports our belief in the importance of 2 *?

The most famous panic was in 1720. of the South Sea Bubble. Prior to that, the worst financial crisis was in the year 1092, when the practice of scuba diving was banned. of Debasing precious metal content of The fall saw the return of currencies of The Roman Empire and the rise of interest rates in Britain to over 50% per year. The difference in years between these two events just happens to be equal to 2 ** 100 = 628 years. Strange coincidence, no?

628 years ago, we are in 464AD. This is when the Vandals had actually overthrown the Roman Empire and Britain was being invaded by the Anguls. The Roman currency was involved in the process of That time, there was a serious debasement – in other words, another financial panic.

Bringing our long-If one measures the time between the founding and the present day, term analysis can be applied to the spectrum of the United States. of Our nation on July 4, 1776 with Declaration of Just thirteen 17.2-year periods between Independence and the 2000 high U.S. equities have occurred. of February 23, 2000 — a date that fell almost perfectly between the January 2000 high in the Dow Jones Industrials and the late March high in the NASDAQ and S&P 500.

Another coincidence? Perhaps. Let’s take a look at these thirteen 17.2-Year cycles are subdivided into their twenty-eight components.-Six 8.6 year half cycles and a strong focus on the rhythm of inflation during each half-Stock prices versus cycle. We will assign each cycle an identifier as we go. “Alexander classification.”

We begin from July 4, 1776, not only because 1776 is our nation’s birth but also because 1776 comes exactly five 17.2-Year cycles (86 years) have passed since the 1690 paper money experiment. It was in that earlier years of 1690. The Massachusetts Bay Colony purchased a military expedition to Canada with paper money, known as Bills, during King William’s War. of Credit. We don’t think it is our right to examine the rhythm. of Modern times, starting July 4, 1776, to be necessarily flawed in their arbitrariness.

Let’s now describe the 8.6-year half.-We will attempt to find a pattern in the 17.2 year overall cycles. of Be kind to others. So please be patient with our bit of For the moment, historical work

First 17.2 year cycle

July 4, 1776 to February 8, 1785: War inflation and counterfeiting marked the first part of This was during this period. In 1778, four Continental Congress dollars were equal to one gold dollar. The ratio was 100 a year later.-1. To get us started, we will call this an Alexander type 4 period of high inflation/low real earnings.

Feb 8, 1785- Sep 16, 1793:-The war period was followed by a depression when wholesale prices crashed between 1784-1787. There was a growing demand from debtors to have states issue paper money to lower the cost of the currency and implicitly reduce their debt burden. The country was experiencing a deflationary panic by 1791, which was exacerbated in part by the collapse. of land speculator William Deur. British Consols (bonds), were heavily bid upon. Numerous banks failed, eventually leading Secretary of Treasury Alexander Hamilton to flood system with capital from U.S. Treasury purchase of Stocks and bonds The Panic of 1791 was the beginning of a major crisis in the Post.-Revolutionary War U.S. of This period is an Alexander type 3 period of net low inflation, low earnings….with equities under pressure, while foreign bonds were strongly bid.

Second 17.2 year cycle

Sep 16, 1793 – April 24, 1802 The Treasury turned the forces of Between 1793 and 1802, deflation was transformed into inflation. Prices rose steadily throughout this period. The The economy also grew strongly, but this inflation weakened it. As such, equities continued to be under pressure throughout these years, clearly an Alexander 1 period. of High inflation, high growth- net offset each other.

April 24, 1802 to Nov 30, 1810 – Inflation continued its rise, while growth declined. Another period of mild Alexander type 4. of stagflation.

Third 17.2 Year Cycle

November 30, 1810 – July 7, 1819 : Post the War of 1812, Deflationary forces return to the U.S. eventually leading the Panic of 1818, when the second Bank was established of The United States defaulted. U.S. producers demanded higher protective tariffs. Low earnings and deflation led to an Alexander type 3 period.

July 7, 1819 to Feb 12, 1828: The second 8.6 years of This cycle saw the U.S. Economy recover while commodity prices fell. It is often referred to as “The Recovery Period”. “Era of Good Feelings” It’s evidently an Alexander Type 2 period.

Fourth 17.2 Year Cycle

February 12, 1828 to Sep 18, 1836: This period was marked by low inflation and high earnings growth. Another 8.6 years were added. of Alexander Type 2 Period.

Sep 18, 1836 – Apr 26, 1845: Andrew Jackson succeeded in lowering confidence in the currency as he tried to bring U.S. banking back down to the State level. In May 1837 New York banks

Many other banks in the country followed suit and stopped redeeming paper money for gold. 618 banks were bankrupt by the end of 1937 and gold were completely out of circulation. Private bank currency of The only money available was of dubious quality and often counterfeit. It was not until 1846, that a stable and independent treasury would be established. These years saw gold’s purchasing power skyrocket. This was clearly a stagflationary Alexander 4-period, even though other commodity price slumped.

Fifth 17.2 year cycle

April 26, 1845 to December 1, 1853 Large-Industrial growth was a result of westward expansion, railroad building, and the discovery of Gold out west. A high growth environment but with rising inflation leading into an Alexander type 1 mixed time classification.

December 1, 1853 – January 10, 1862:-The expansion of railroad speculation and land speculation led to a financial crisis in 1860. This period was marked by declining asset prices, inflation, and a type 3 Alexander period.

Sixth 17.2 Year Cycle

July 10, 1862 to February 14, 1871 The Start of The Civil War and deficit spending of the Treasury to finance it brought about another period. of Inflation is rampant. However, the economy was experiencing real growth in order to produce goods in support of The war. The net result was a type 1 Alexander period, punctuated only by a brief panic over gold in 1869.

Feb 14, 1871-Sept 22, 1879: Inflation dropped steadily in these years following a panic over railroad stocks in 1873. However, real growth in the economy was high. These were boom years of Alexander type 2.

Seventh 17.2-year Cycle

Sep. 22, 1879 – April 28, 1888: The inflation rate continued to fall over these years as big business and industrialization grew. Although stock prices didn’t rise dramatically, we still refer to these Alexander type 2 year.

April 28, 1888 – December 4, 1896: 1888 saw a turning against big business due to the introduction of Antitrust legislation and its reversal of Excessive railroad speculation. Particularly after Panic of It was established in 1893 as a low-inflation, low-growth economy.

Eighth 17.2-year Cycle

Dec 4, 1896 to July 12, 1905: The trough in deflation was 1897, and American growth led us into the Spanish.-American War of 1898. This period was Alexander type 1, with an increase in inflation and growth.

July 12, 1905 – February 17, 1914: Inflationary trends are strong and favorably influenced of This was a bad time to invest in equity because of better labor conditions. The panic of 1907 was short-Lived and of We would call this period an Alexander type 4 despite the fact that it had little consequence.

Ninth 17.2-Year Cycle

Feb 17, 1914 – Sep 24, 1922. War years brought a nice step-Inflation to finance the war effort will cause further increases in corporate earnings. However, there will be an increase in corporate earnings. of The period. This is probably the most difficult period to categorize. We’ll still call it an Alexander type 1 environment.

Get your instant download Barclay T.Leib – Measuring Financial Time The Magic of Pi

Sep 24, 1922 to May 2, 1931 – Low inflation and high real U.S. economy growth led a stock market boom that despite the severe recession, was very buoyant. of The Oct 1929 market plunge didn’t reverse until May 1931. This was an Alexander type 2 boom.

Tenth 17.2-year Cycle

May 2, 1931 – December 7, 1939: Low corporate earnings and deflation create the largest economic trough in American history — an Alexander type 3.

Dec. 1939 – July 15, 1948: World War 2 causes growth and inflation to return.

Eleventh 17.2-year Cycle

July 15, 1948 – February 19, 1957: Post-Low inflation and increased war productivity are combined to make the equity market a boom Alexander type 2 situation.

Feb 19, 1957 to Sep 28, 1965: The brief Cold War panic over Cuban Missiles and the inflation that started creeping higher did not deter a bullish market where real business growth continued. This led to a continuation of the Alexander type 2 bull markets. 1965 was a time of momentum in stocks, and a real high for the next 20 years.

Twelfth 17.2-year Cycle

Sep 12, 1965 – Apr 19, 1974: Strong inflation due to deficit spending for Vietnam war. Corporate earnings growth moderated, which creates a type 4 stagflationary atmosphere that is bad for equities.

April 19, 1974 to December 11, 1982: Corporate earnings growth gained momentum but inflationary pressures & high interest rates undercut equity market headway, a type 1.

Thirteenth 17.2 Year Cycle

Dec 11, 1982 to July 18, 1991: Inflation declined as corporate earnings remained high, a type 2-boom environment. The Gulf War results in mild recession at the conclusion of This period.

July 18, 1991 to February 23, 2000: The Inflation Rates are still very low while the Debt Levels remain high-Corporate growth spurred on by financed investment increases reported earnings, a continuation of The type 2 boom environment.
Get Measuring Financial Time The Magic of Pi – Barclay T.Leib Only $27

Summarizing, the 8.6-Year patterns that we have created go:

1776-1785 – Type 4: High Inflation, Low Growth, WAR
1785-1793 – Type 3 – Low inflation, low growth
1793-1802 – Type 1: high inflation, high growth
1802-1810 – Type 4: High inflation, low Growth
1810-1819 – Type 3: Low inflation, low Growth, WAR
1819-1829 – Type 2: Low inflation, high Growth Boom
1828-1836 – Type 2 – Low inflation, high growth boom
1836-1845 – Type 4 – High inflation, low growth
1845-1853 – Type 1: high inflation, high growth
1853-1862 – Type 3: Low inflation, low Growth
1862- 1871- Type 1: high inflation, high growth, WAR
1871-1879 – Type 2: Low inflation, high Growth Boom
1879-1888 – Type 2 – Low inflation, high growth boom
1888-1896 – Type 3 – Low inflation, low growth
1896-1905 – Type 1: high inflation, high growth, WAR
1905-1914 – Type 4 – High inflation, low growth
1914-1922 – Type 1: high inflation, high growth , WAR
1922-1931 – Type 2 – Low inflation, high growth boom
1931-1939 – Type 3: Low inflation, low Growth
1939-1948 – Type 1: high inflation, high growth, WAR
1948-1957 – Type II: Low inflation and high growth boom
1957-1965 – Type 2 – Low inflation, high growth boom
1965-1974 – Type 4 – High inflation, low growth and WAR
1974-1982 – Type 1: High inflation, high growth
1982-1991 – Type 2, low inflation, high growth. WAR
1991-2000 – Type 2, low inflation and high growth

Out of A 223.5-The majority of the year-long period of The market’s real inflation-Adjusted gains were realized in only 77.4 years. The balance has not yet been achieved. of The years have been nothing but a struggle. This alone suggests that equities are the place for pundits to be all. of I haven’t looked at actual price history very closely all the time. We have definitely experienced many long periods. of time when equities have not returned a lot of net returns. If our analysis is correct, the years 2000-2008 should be one of them.

Fourteenth 17.2-year Cycle

Feb 23, 2000 – Sep 29, 2008. After each previous double 8.6-Year cycle of Type 2 boom. We have either had a dangerous 4 period (high inflation, low growth) OR a more frightening 3 period (low inflation, low growth). We have never seen three consecutive types 2 boom periods. We have never had the more benign type 1 situation. of After two consecutive 8.6’s, high growth with high inflation-Year type 2 boom periods. With the 51-Year cycle in commodity price fluctuations due to bottom in2000-2001, a market of type 4 of At this time, low earnings growth and high inflation seem most likely. These will not make the next eight-years easy.

Sep 29, 2008 – Mai 7, 2017: Assuming first 8.6 years of This 17.2-year cycle can be described as either a type 3, or 4 situation. The pattern in each of these situations is of Our previous instances have shown that the 8.6 year period should be a type 1 market of Rising inflation offsets strong growth. This would be a fitting conclusion to America’s demographic boom.

Longer term, the next 17.2 year cycle would then fall in July 2034, which coincidentally perhaps, is 314 years ( again) from the 1720 South Sea Bubble, 942 years (3 * ) from the Crisis of Between 1092 years and 1570 (5 ) from when the Roman Empire was dissolved from power. I only hope that I live long enough to see what will happen in this year. Most likely America’s excessive amount of debt.-Negative trade deficits and up will be eliminated once and for all.

How can we use all this information, cyclical behavior if it is possible to call it that?
These are some general guidelines:

We trade the markets; we don’t invest.
We forget about trading regulations that have been successful over the past 17.2years.
We are looking for trading opportunities that can benefit from a return of Inflationary forces

An old saying states that one ounce has been the standard throughout history. of You can always buy one fashionable set of gold earrings with your gold coin of Men’s work clothes, also known as a business suit. This rule suggests that gold is undervalued at $261 an ounce $261 would buy you a jacket but not the pants. Suits these days typically cost $400-$550 depending upon where you shop. of course). Although this undervaluation has been in place for some time, gold is still considered a viable investment option. We believe gold has a strong opportunity to move towards the $294.5 target this fiscal year, based on the extrapolated Fibonacci rhythm shown below on April Comex Gold futures.

We think it highly probable that gold will begin this foray higher despite our longer term cyclical bearish views about equities. There will be a concomitant jump in the equity market to June 2001 before another plunge to marginal new equity highs by November.-December 2001. This view is depicted in an update of our “pattern match” of The current NASDAQ 100 price behavior is the same as the previous. of Gold back in 1980-1981.

Even though gold was in secular bear markets, it managed to rally to just over $500 an ounce. The first rally began in 1982, and the second in 1985, and continued into 1987. We now expect the NASDAQ 100 to eventually challenge just above 3000 in a similar, but slightly faster fashion. We expect a rally. of Unknown magnitude into early Juni (2200)-2600 on NASDAQ 100 could cap that), another downswing into marginally new lows by year’s end, but then the upside once more as we move into 2002.

The NASDAQ 100 will eventually drop to the low 1700s but this could take a long time of Time – in the same way that gold took multiple decades to migrate to its $251 lowest trading ranges of the $300-$375 range.

We wouldn’t be surprised to see the DJIA make marginal new highs during this bounce period. It would not surprise us if the dollar appreciated against the Japanese yen as more capital leaves Japan for the perceived safer.-Haven of The U.S. They also tend to purchase the highest highs. This makes gold denominated as yen a particularly explosive chart pattern.

Get your instant download Barclay T.Leib – Measuring Financial Time The Magic of Pi

So, we have a cyclical equity bear with a projected short-term high.-risk bounce. Some may want to take the bounce period. Our proclivity is to trade more than just siting on the sidelines. The combination of long gold and short yen is very appealing.

Let us end by talking about the interpretation of our 8.6.-Year half-Martin Armstrong’s original 8.6-year cycle. Armstrong’s cycle landed on the July 20, 1998 equity peak. 8.6 year before that, his cycle also caught a 1989 Japanese Nikkei high to week. 8.6 year before that, it also caught a May 1981 DJIA high before a sharp bearish downturn into August 1982. It even happened just before the 1929 stock crash. Perhaps Armstrong’s cycle dates, especially from a trading perspective, are more precise than our window for catching significant market changes. Armstrong was correct in predicting that equities would continue their climb after July 20, 1998. The hellacious rally of 1999 to early 2000 were thus the inspiration for Sand Spring to improve his methodology in order to discover better starting and ending points of The 8.6-Year cycle rhythm. We wanted to extend it back in time, which was a particular goal.

We might have succeeded or not. 628, 314 & 17.2 seem to have appeared almost eerily in the work we did in places where we weren’t expecting them to. Other cycle scholars like Dr. John Vyden of UCLA has also modified Armstong’s cycle to make it more interesting. Maybe there’s more than one 8.6-Year cycle out there, but a whole continuum of They play leapfrog with one another all the time-Line of history.

Yet, somehow, the fog passes. of Short-Market noise and gyrations may be called it, but we believe one thing is clear: Fibonacci rules. of price fluctuations, while , and more specifically 2 * , rules the passage of time.