PEI Cycle High – 26 February 2007
Source: Barclay Leib, Len Wheeler, et al.
Although he has been much defamed, Martin Armstrong of Princeton Economic Institute did no doubt stumble upon a unique cycle in financial market analysis. He began with the simple procedure of adding up all the financial panics between 1683 and 1907, and dividing the 224 intervening years by the number of panics that he found, 26 of them to be precise. The result was an average duration between panics of approximately 8.6 years. Of note, 8.6 years also equals 3141 days, or the mathematical symbol of “pi” times 1000.Armstrong went on to do a great deal of further research into this preliminary “cycle,” noting that 6 individual 8.6 year cycles added together came to 51.6 years — or something akin to the famous Kondratieff cycle. He also noted that many of the 8.6 year periods represented shifts in public sentiment away from government control of the economy, and then subsequently back toward it when a “bust” cycle became overwhelming. He noted that “politics seemed to ebb and flow in harmony with the business cycle.”
Using the Crash of 1929 (1929.75) as his starting point, Armstrong was also amazed to find that his general 8.6 year rhythm worked in a remarkably prescient manner going forward in time — often almost to the day. We list these global business cycle dates on the table below, each cycle lasting almost exactly 8.6 years, and have added our own Elliott Wave labeling for those so inclined.
- 1929.75: U.S. equity market crash — end to Wave I;
- 1938.35: End of U.S. bear market — end to Wave II, beginning of 1 of III;
- 1946.95: U.S. equity market high — end to Wave 1 of III;
- 1955.55: U.S. equity market breaks the 1929 high — end to Wave 2 of III, beginning of 3 of III;
- 1964:15: U.S. equity market high — end to Wave 3 of III;
- 1972.75: U.S. equity market high — end to Wave 5 of III, beginning of protracted wave IV and inflationary spiral;
- 1981.35: Last series of Fed tightening begin to squelch inflation, beginning the final descent of Wave IV into August 1982;
- 1989.95: First global market to complete its Wave V topped on this day: Japan. End of Wave 1 of V elsewhere;
- 1998.55: July 20, 1999 marked a significant high in both European and U.S. equities, preceding the August 1998 Russian debt crisis — the end of Wave 3 of V;
- 2007.15: February 26, 2007
- 2009.33: April 19, 2009
- 2011.45: June 13, 2011
The last four major PEI cycle turns have been uncannily prescient, especially given how long ago they were prognosticated (back in the 1980s, I think.) But not all of them were direct hits:
- The 1989.95 PEI major cycle top was predicted for Dec 12 1989. The Dow actually topped on that day and fell about 5%. Then re-rallied to a higher high on Jan 2 1990, 19 days later. That’s when the big drop came: -12%. Then the Dow re-rallied to an ever higher high by mid-July before dumping -22% into Oct.
- The 1994.24 PEI major cycle bottom was predicted for Apr 1 1994. That was a direct hit. The Dow bottomed exactly on Apr 1 1994 after a 12% selloff. Then it rallied for another six years.
- The 1998.55 PEI major cycle top was predicted for Jul 20 1998. That was also a direct hit. The Dow topped exactly on Jul 20 1998 and dropped -22% by Sept/Oct.
- The 2002.85 PEI major cycle bottom was predicted for Nov 6 2002. The Dow bottomed on 10/10/02, nearly a month earlier. The next big cycle high is supposed to be Feb 26 2007, which the PEI predicts will be along the same lines as Jan 1990 and July 1998.
One of Armstrong’s last comments made in 2000:
“I view the world from a global correlation perspective and it just doesn’t seem possible to achieve a raging bull market in metals when stocks are the flavor of the month. Historically, bull markets are created when capital concentrates, and that focus is in the stock market for now. When that concentration breaks, capital will look around for the next great investment. That should be the commodity cycle between 2002-2007 and perhaps extend out as late as 2012. For now, the metals should make their final lows by 2002. Either way, they should be contrasted by a bubble top in stocks.”