You have heard stories when we experience a full moon of those who are on duty busier than ever at police stations and in emergency rooms. The word “lunacy” which means “insanity” comes from Latin for “moon.” Legend has it that “The Lunar Effect” or “The Transylvania Effect” brings out the worst in people. Nurses at emergency rooms or police department operators observe more violence, more suicides, more aggression, and more accidents. “The ancients depicted the concept as the great ‘Wheel of Fortune,’ eternally turning and spilling off the winners on top while bearing up the wretches beneath and giving them their time in the limelight before they, too, get dumped,” wrote John Townley at InnerSelf. Townley goes on to say, “For hundreds of years we have known that it is the regular and predictable cycles of the moon and sun that regulate the ocean’s tides, but the tides in the affairs of humans have not been so easily forecast. It was almost as if they moved erratically of their own accord, unmotivated by outside forces. The extensive cycle research over the past thirty years has proved otherwise. It has established numerous links between regularly occurring human behavior and external natural cycles ranging from weather and solar radiation to phases of the moon and planetary cycles.”
"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." - Mark Twain
Paul Macrae Montgomery was the publisher of the Universal Economics newsletter and “a long-time student of market influences outside the usual financial factors,” wrote Randall Forsyth, Barron’s, September 21, 2012. “While the most memorable crashes took place in October -- 1929, 1978, 1979, 1987, 1989 -- markets often peaked during the prior month before starting their steep slides. Specifically, the Dow Jones Utility index peaked on Sept. 21, 1929, weeks before the Great Crash of that year,” Forsyth reports. And Montgomery “notes a panic on Sept. 21, 1873, forced the temporary shuttering of the New York Stock Exchange. In addition, stocks sometime make major lows, as on Sept. 22, 2001, in the wake of the 9/11 attacks.”
I asked Harry Dent, Dent Research if this was all of the wing nuts out to fly or is there a pattern here worthy of our attention. Dent started off with, “One of the hardest things I’ve had to stake my name to was the concept of how sunspot cycles ebb and flow about every 10 years and the effect on our economy and stock markets,” on November 1, 2017. We’ve had major or minor recessions about every 10 years! They occurred in the early 1960s, early 1980s, early 1990s, early 2000s, and between 2009/2009. Another is due just ahead, between 2018 and 2020 by my forecasts. This isn’t coincidence. There’s something behind this; sunspots.”
Dent went further, “I dug into this phenomenon, which scientists can track back to the 1600s accurately, and I found that 88% of the recessions back to the mid -1800s (where there is good data) occurred in the downside of these sunspot cycles! Even better, 100%, 11 out of 11 major financial crises, occurred in the downside of this cycle, like the one I am forecasting just ahead. In short: Ignore this cycle at your peril. Sunspot cycles are simple: sun and energy. The more there is, the better people feel, just like sitting on the beach and soaking in the sun, it energizes us.”
To help put things in perspective Harry suggests, for example, that the longer we are in Seattle during a long rainy season humans often become more depressed. Despite more popular cycles it may be that investors tend to be more bullish in rising sunspot cycles than declining ones. “There is literally, on average, 20% more radiation (and rainfall from evaporation) at the top of such cycles than at the bottom.” Submits Dent. Here’s his update on the last two sunspot cycles.
The last one peaked in March of 2000, right at the top of the tech bubble. There was a first crash into late 2002 and then the Great Recession from 2008-2009 came at the very bottom of that cycle. And it’s typical to see recessions and stock declines right after the peak, or near the bottom.
Now before you Dear Investor dismiss this as ‘fake news,’ let’s see what Bank of America Merrill Lynch reported at Yahoo Finance on November 21, 2017. “The S&P 500 would peak-out around 2,863, or about 11 percent higher than the close on Monday, November 20, 2017. Bond yields are expected to rise, with the benchmark 10 year Treasury note hitting 2.75% as global GDP growth reaches 3.8%. That setting assumes three things: the ‘last vestiges’ of stimulus from the Fed and other central banks, the passage of tax reform in Congress, and ‘full investor capitulation into risk asset’ on better than expected corporate earnings.” Even with all of that working for the bull to keep running, after that “things get considerably sketchier as the second longest bull market in history runs into trouble.” Michael Hartnett, chief investment strategist at BoAML said in his report, “We believe the air in risk assets is getting thinner and thinner, but the Big Top in price is still ahead of us. We will downgrade risk aggressively once we see excess positioning, profits, and policy.” Hartnett made the point that this bull market “will be the longest in history if it continues to August 22, 2018, while the outperformance of stocks versus bonds, at seven years running, would be the longest streak since 1929.” You know what happened from 1929 to 1932. In the meantime, “’Big Top’ trades favor technology, homebuilders, Japanese banks and the dollar against the Swiss franc.”
Just as BofAML expects to enjoy the gains, you can see the firm also has an exit strategy. As I am fond of saying, ‘It’s not about the prediction, it’s all about the preparation.’ When you join a crowded room of people I trust entered you took note of the Exit signs so if things turn explosive your odds of getting to safety are enhanced. The same logic applies to protecting your assets. Before the music stops on the merry-go-round, please take the time to answer this question; In the next unexpected debacle what’s your exit strategy?
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