Tuesday, March 06, 2007

On Business Cycle and Consequences of Short Squeeze (Part 1)

This is a three part series I have written and broken up for ease of assimilation. I have tried to write it in layman language and leave out the lingoes to make it accessible to all- feel free to seek clarification of term usage as it intended meaning might be lost in the simplification.

Sometimes in September last year, I had come across an article by Martin Armstrong - a former high profile Wall Streeter now in jail indefinitely on contempt charges. In that article, the lifer and eccentric had argued that the “economy” grow and burst in predictable cycles and even though he relied on back testing more than numerical analysis, he came up with 8.6 years cycle. I saved the article and laughed it off especially given the reputation of the writer (now in jail of course). However, I noted that the next turn (major or minor) predicted by date was February 27, 2007- just few months away.

I only remembered I had saved some Nostradamus like article on Thursday the 1st of March when I dug in my archives and came up with Armstrong's article. I was more than stunned to observe that he was bull’s eye accurate. True to his prediction, the market has since experienced feverish jitters since that date. More so, his track record of predictions speaks for itself. Hence, I took it upon my self to perhaps read the article again, and come up with a new interpretation untainted by my lack of objectivity the first time around.

The Gist
The core gist of Armstrong’s hypothesis was business cycle and the boom-burst cycle occasioned by an externally driven cycles either exaggerated by intervention or a lack of it. Indeed, he postulated that given his 8.6 year cycles and the mini-quartet cycles in-between them, the total number of days (3141) was a function of pi, thus confirming its natural periodicity (one of those eccentric calculations or approximations that will befuddle engineers and mathematicians reading this). But on second read, beyond these quick approximations and weakness of the Armstrong hypothesis I found a particular unexploited abyss: it is nearly almost impossible to correctly interpret or apply this hypothesis. But at each turn, the consequences of these holes were the strengths and abiding infallibility of the ultimate calculation of the 8.6 years he came up with. It is my intention to glean the misinterpretations of his gist and its consequences in my next posting. Feel free to pore through the article, and highlight the “weaknesses” you spot.

1 comment:

Shola said...

I have to say I am intrigued. Enough to do a quick check with DJIA, S&P 500 and Russell 2000. I did not see the correlation. Reading the article I questions some of the assumptions for global capital movements. However, I am still intrigues enough to wait for the next few installments of your article.

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