The Ghost Of W.D.Gann: Another Crash Is Coming

Authored by Philip Soos & Lindsay David via RenegadeInc.com,

The original wizard of Wall Street, W.D Gann was a finance trader and wealthy speculator that spent decades investigating cyclical trends in equity market patterns and found that prices could be predicted long in advance. He successfully predicted the crashes in the 1929 and Dot-Com stock market bubbles.  And according to his analysis, the US stock market is due for another crash in 2020.

Every movement in the market is the result of a natural law and of a Cause which exists long before the Effect takes place and can be determined years in advance. The future is but a repetition of the past, as the Bible plainly states…

After suffering through the worst economic and financial crisis since the 1930s depression when the real estate and stock markets crashed in 2007, the United States’ bubble economy is back into full swing. Residential and commercial real estate prices are growing strongly, along with equities.

The US stock market, as defined by the S&P500 index, has boomed after collapsing to a trough in 2009. The market ‘recovered’ more quickly than anyone thought it would, and has continued surging from thereon in.

This has led to a lot of commentary and media coverage that the S&P500 is in the thrall of yet another bubble that will burst. Despite the many predictions of collapse, the bubble has powered on unhindered.

Like all asset bubbles, the primary cause is speculators taking on debt to bid up prices to ever-higher levels, generating a stream of greater fools willing to purchase at inflated valuations. In the case of equities, the type of debt used is margin debt.

The trends in the S&P500 index and margin debt are obvious. The name of the game is capital gains; income is increasingly sidelined as yields become compressed to record lows.

The annual change in margin debt (the first derivative) closely tracks that of the S&P500 index. In Australia, this was true of our largest equities bubble on record, which peaked in 2007 and then burst, declining by 55% from peak to trough.

Margin debt all too coincidently rose rapidly during the boom.

In the case of the S&P500 bubbles which peaked in 2000 and 2007, margin debt also peaked a few months beforehand in terms of absolute values, annual growth and acceleration (the second derivative).

It is therefore worth closely tracking the trends in margin debt to understand where equity prices are heading.

Another metric to watch out for is private non-financial business debt because the very low interest rates on business bank loans makes it easy for corporate executives to drive up stock prices by loading up on debt to engage in stock buybacks.

As prices are often linked to executive remuneration, they have every incentive to engage in this unproductive strategy.

The peaks in the annual change of non-financial business debt correspond with those of the equities market. It should be noted that non-financial business debt is also used to speculate on commercial land, which is why land prices cycle in tandem with debt.

The yield curve is one of the best leading indicators of recession and equity market downturns. The yield curve inverted a few months before both peaks in 2000 and 2007. Currently, the yield curve is 108 basis points above zero, and could take a while before it inverts.

While the metrics noted above can accurately indicate the peak of an equities bubbles several months in advance, they cannot tell us anything years ahead of time. For this, we must turn to the research of the original wizard of Wall Street, W.D. Gann. He was a finance trader who developed technical analysis tools and forecasting methods based on geometry, astronomy, astrology and ancient mathematics.

He was a successful and wealthy speculator, spending decades investigating patterns in equities markets. He concluded that equities exhibited a cyclical trend over decades and thus prices could be predicted long in advance.

In 1908, Gann constructed his financial timetable, which tabulated the booms and busts, peaks and troughs of the US equities market. Just like the Geoist land market cycle, there is a repeating 18-year average between every major cycle.

Gann managed to predict the crash of 1929 years in advance. He realised that the timetable would have to be recalibrated on the 25th December 1989.

The updated timetable is amazingly accurate from that date onward, predicting the Dot-Com bubble peak in 2000 and its collapse. The GFC peak was off by one year; 2007 instead of one year earlier in 2006. The trough was in 2009, followed by a minor panic in 2015, when the S&P500 dipped but has since boomed.

According to the timetable, 2020 will be the peak of the equities bubble, followed by a major crash similar to that of the Dot-Com bubble.

To the economists we’ve spoken to, the peak could range between 2019M09 to 2020M03. Given how large the S&P500 bubble has become, it is worth treading very carefully during this period for those exposed to US equities.

Gann is famous for saying: “Every movement in the market is the result of a natural law and of a Cause which exists long before the effect takes place and can be determined years in advance. The future is but a repetition of the past, as the Bible plainly states…”

Due to the ETF revolution, it is a straightforward matter to gain exposure to the S&P500, including leveraged and inverse instruments. It would be even better if the government would enact policies to prevent speculation and subsequent bubbles in the first place. This can be done by banning margin debt and other securities-based loans, and heavily taxing capital gains based on the length of time they were held for (the longer, the less tax).

While the equities market boom has added a great deal of wealth to the balance sheet of US households, it is merely the latest instance in a long line of asset bubbles. No doubt many speculators believe that ‘this time is different’ but the ghost of Gann would argue otherwise.

Comments

macholatte ShrimpinAin'tEasy Wed, 12/27/2017 - 14:42 Permalink

 But this time is different.......Never before in history has there been such massive interference by Central Banks to the pont where the concept of a “market” is illusory.Never before in history has there been a Black, Muslim Communist as POTUS.Translation: It’s Trump’s fault. FYI:The WD Gann Financial Timetable (updated to 2028)https://thetimefactor.com/Blog/the-wd-gann-financial-timetable-updated-…

In reply to by ShrimpinAin'tEasy

Gap Admirer Endgame Napoleon Wed, 12/27/2017 - 12:20 Permalink

I use Brave. I'm a little disappointed with the flaws in it. Basic stuff like the top link of a drop down bookmark selection not working (can't click on it), the search function going away when the page is changed, etc. And, they say that they prevent "fingerprinting" (the latest method of marketers tracking you). False. I ran a fingerprinting test on one of the test sites and I was fully fingerprinted.

I still use Brave hoping that they get things straightened out soon.

In reply to by Endgame Napoleon

LSD - Lower Sl… DownWithYogaPants Wed, 12/27/2017 - 12:16 Permalink

The only reason I can think of that people would claim that Brave is "of dubious moral etc etc etc" is becasue the CEO of the Brave browser company is the guy who Mozilla (Firefox) fired for being a Christian. Years ago he contributed to a non-profit that wanted marriage to be between one man and one woman. That set off the shrill, shrieking, mentally unstable, leftist activists to get him fired.

In reply to by DownWithYogaPants

lew1024 lil dirtball Wed, 12/27/2017 - 17:36 Permalink

So suppose you wanted to kill a web site that was very popular.  Cheapest way, in terms of blowback, is to buy it, then ruin it.So many ways to ruin a web site, just have inept new owners and managers. The kind of people who drive away traffic with too many ads, recycle stale stories, are running the advertising service on the side that puts up all the "I made so many thousands of dollars, working part time via internet" comments.Having just read Moon of Alabama's understanding of how the CIA bottled up almost all of Snowden's files :http://www.moonofalabama.org/2017/12/washington-post-russia-sham.htmlI have become paranoid. Well, even more paranoid.These days, paranoia is like cynicism. You can't be too cynical, but you should damn well try hard.

In reply to by lil dirtball

2rigged2fail Bankers R Wankers Wed, 12/27/2017 - 12:01 Permalink

So I know Bitcoin gets a lot of talk on ZH.  Want a great idea for blockchain that will help with all these ads and pop-ups.  Download the Brave browser it blocks everything lods pages in 1 or 2 seconds.  The guy who created it invented javascript and Firefox.  HE has a coin out called BAT (Basic attention coin).  YOu turn on the ads for pages where you want to see ads and you the user gets paid.  What a great idea.  It's not all live yet, but I am using Brave now on my Mac and ZH is a pleasure to use.  Yes I also did pickup some BAT coins since i think this will be big.  

In reply to by Bankers R Wankers

Flankspeed60 Bankers R Wankers Wed, 12/27/2017 - 12:23 Permalink

I don't mind most of the ads - the ones that stay on the sides of the article. But the ones that pop up in the middle, making the article unreadable, and then lock up your screen - those are the real pissers. And yes, ad blockers are the only things making ZH readable anymore. I've donated twice to ZH - I suppose if enough folks did the same................. But a fair number of people believe ZH is a human right, an entitlement program that should not be encumbered by commercial annoyances. Then, those same people will complain about welfare cheats. Gotta' laugh!

In reply to by Bankers R Wankers

Rainman Wed, 12/27/2017 - 11:21 Permalink

Then he said to them, “Watch out! Be on your guard against all kinds of greed; a man's life does not consist in the abundance of his possessions ".       ~ Luke 12:15

Endgame Napoleon Rainman Wed, 12/27/2017 - 11:50 Permalink

Does $6,444-child-tax-credit greed count, the kind of greed that finances $800 tattoos and beach trips with boyfriends with tax welfare, when rent and groceries are covered by taxpayers? Do you count the kind of greed that calls tax welfare, issued in lump sum, a necessity for baby that you just do not understand if you do not have children, even though rent absorbs more than half of your earned-only income, while “poor, struggling” mommas load their child-tax-credit-financed master bedroom sets into their their zero-down-financed SUVs.

It’s-all-for-baby greed crosses two sin lines: avarice and dishonesty.

In reply to by Rainman

A. Boaty Wed, 12/27/2017 - 11:27 Permalink

"William Delbert Gann (June 6, 1878 – June 18, 1955) or WD Gann, was a finance trader who developed the technical analysis tools known as Gann angles, Square of 9, Hexagon, Circle of 360 (these are Master charts). Gann market forecasting methods are based on geometry, astronomy and astrology, and ancient mathematics. Opinions are sharply divided on the value and relevance of his work. Gann wrote a number of books on trading."

https://en.wikipedia.org/wiki/William_Delbert_Gann

Tylers, you can do better than this.