“The handmade blade, the child’s balloon
Eclipses both the sun and moon.” – Bob Dylan, It’s Alright Ma
“Some in clandestine companies combine;
Erect new stocks to trade beyond the line
With air and empty names beguile the town,
And raise new credits first, then cry ‘em down;
Divide the empty nothing into shares,
And set the crowd together by the ears.” – Daniel Defoe (1550-1731)
It has been 300 years since the South Sea Bubble burst in London of which Daniel Defoe wrote.
The South Sea Company had devised a scheme whereby they had taken on the British debt.
But the whole scheme stood or fell with the company’s being able to generate a large and continuing flow of funds from the investing public.
You know, like a chain letter.
So the South Sea promoters came up with another brilliant idea. In order to furnish the market with funds for fresh buying of their stock and to offer a new incentive, the company offered to loan money against stock deposited on what was called the installment plan.
So successful was this new gimmick that it was repeated no less than three times. This was possible as a result of still another ploy by the company’s directors, which insured that the money they lent would, for the most part, come back to company in the form of new stock subscriptions.
The objective of this new exercise was to eliminate the competition for such investible funds.
For all of a sudden, competition had appeared from all sides. London being a city full of clever people in the financial filed was stunned by the success of the South Sea Company, and thus it immediately brought forth hundreds of similar schemes. A rage for stock brokerage sprang up simultaneously.
Think SPAC’s and Robin Hood.
The expansion of credit and the rise of speculation went hand in hand.
“There are few in London that mind anything but the rising and falling of the stock.” – Edward Harley, FEBRUARY 1720.
What had happened is that, regardless of legal restrictions that normally made it extremely difficult to form new companies, new “joint stock schemes” (companies based upon publicly owned shares), usually bought on credit, sprang up every day.
Then, as today, cats and dogs of shares frolicked.
Then, as today, many of those schemes were successfully launched not because of any real value involved, but because of the name of the man or men that fronted the projects.
Some of the companies were genuine. The vast majority which received the name bubbles, were not.
The typical prospectus of this period announced the formation of a company “for carrying on an undertaking of great advantage.”
Ultimately, no one could ever find out what this “undertaking of great advantage” was.
It is reckoned that as much as 300 million pounds was raised for these speculative undertakings.
The directors of the South Sea Company immediately recognized the danger in this.
Every pound that went to share subscriptions of another company would be lost to them. They badly needed these funds to keep their perpetual-motion financial machine going.
So they went to their friends in Parliament and had a Bubble Act passed, making all companies illegal which had not obtained a royal charter.
In the weeks that followed the passing of this act, the South Sea Company shares once again rose.
But the people behind the company had gone too far. The passing and enforcing of the Bubble Act proved to be their undoing. It had started a panic — no one knew exactly which companies would be declared illegal.
Every company became suspect.
That’s what happens in a panic… contagion.
In a few days, no buyers at any price could be found.
Soon the chickens came home to roost on The South Sea Company itself.
The company had done nothing to develop the territory in the new worked it had trading monopoly.
The company had very little income and its expenses, most of which were directors' fees, were high.
It was a bubble.
They went to their old “fiend” the Bank of England to propose the bank take over a large block of South Sea stock at a discount.
This was a similar move that would recur in 1929, when the Wall Street establishment got together as buyers in a last ditch attempt to stem the flood of stock sales.
But, as in 1929, as in 1720, it did not work.
The Bank of England refused the proposal.
For good reasons: the bank itself was in trouble.
The entire system of credit in England has been brought to the brink of total collapse as company after company went under.
Finally, the company that started it all, went under.
The real cause was in the basest of instincts of politicians in particular and people in general.
Politicians, eager for power and recognition, had agreed to a stupid scheme. Instead of facing reality when it became obvious that it was doomed to failure, they agreed to one stupid measure after the other, merely postponing the pernicious day of collapse.
They brought the whole country to the edge of financial ruin, instead of just one company.
Is the Fed doing the same thing as the Bank of England in essence by making money so cheap that one harebrained scheme after another proliferates on Wall Street as directors and board members of companies borrow money for corporate buybacks and get rick on vesting options?
Is there any difference between this and what is going on in SPAC’s and what happened 300 years ago
This year around 130 SPACs have gone public — more than in the first 9 months of 2020.
In sum, traders’ narratives to justify the long side multiply the longer the market walks up the staircase of illusion before it rides the banister to hell
The illusion is that with interest rates remaining near zero, the insanity will continue because as the reasoning goes, there’s simply nowhere else to put money.
The illusion has fueled a delusion of a cult-like belief in the Fed; that they can and will backstop any eventuality.
Belief is complete. We have capitulation by nearly all non-believers if the current trajectory of stocks is any evidence.
While trajectory tries to convince us that there is no upper limit to the market when anything priced in a fiat currency is purposely inflated to go up perpetually forever…the Weimar experience in Germany argues against it.
Just because one may not know what the limit is to price… to a bubble, does not mean there is no limit.
While price seems impervious to a charging bull, Time is the Matador.
W.D. Gann wrote that time is more important than price.
It has been 300 years since the South Sea Bubble collapsed in 1720.
Maybe something, maybe nothing, but on my Square of 9 Time & Price Calculator the number 300 is straight across and opposite March 6-9 when this advance started in 2009.
Purple is 300
Blue is March 6
Note that early March is also 180 degrees straight across and opposite early September, the top in 1929.
So, the top prior to the Great Depression is opposite on the calendar the bottom of the Great Recession.
Lest you think this is voodoo, allow me to show you something which blows my mind.
This year we are 92 years from 1929.
The square of 9 below shows that 92 is square (90 degrees) October 29, the day of the great crash in 1929. The implication is the potential for panic sometime this year.
Green is 92
Red is October 29
I have some thoughts about when that lines up if that is going to occur.
Notice on the above Square of 9 image that just below 92 is the number 58.
It is 58 years from 1929 to 1987.
Knowing this was a great advantage in October 1987.
The unique Square of 9 can be used many ways.
I have never come across anyone using the numbers in the grid as YEARS.
But, let’s take a look.
If I anchor “0” to 1987 (987 in the purple grid which is the 1000’s as the wheel is color coded) you will notice that the year 1987 is square October 29, the crash day in ’29.
So the year 1987 vibrates off October 29, a horrendous crash. To be sure, the pattern of both crashes ’87 and ’29 were very similar.
Red is October 29
Blue is 1987 (year)
If I anchor “0” to 386, the DJIA high in 1929, it is square October 19, Black Friday in 1987.
Orange is 386
Red is October 19
In other words, the price of the high in 1929 vibrates or is square the date of the crash in 1987.
You can’t make this stuff up.
Let’s take a look at another panic, the Lehman Crash in 2008.
It is 79 years from 1929 to 2008.
The pre-crash peak in 2008 was on May 21.
The crash bottomed on November 21, straight across and opposite May 21.
Blue is May 21
Red is November 21
Purple is 79
Green is 1929 (929 in the 1st purple grid)
So 79 years after 1929, the Square of 9 “pointed” to the possibility of a panic between May and November.
Notice that the 1929 (929) also intersects the number 79 and May 21 and November 21.
As such, the Great Financial Crash resonates with the top prior in 1929 prior to the Great Depression.
Interestingly, the interim low of the 1929 crash occurred on November 13 while the Lehman Crash in 2008 bottomed on November 21, just one week apart.
Still think the market is random?
Allow me to present one last time and price vibration.
Anchoring “0” to 2009 for the year 2009 shows that it is square March 6.
March 6, 2009 was of course the bear market low at 666/667.
As well, 2009 bisects the price low (666/667) and is square the date of the low March 6th.
W.D. Gann wrote that when time and price square out, expect a change in trend.
What I have shown here is that, in addition, when time tunnels through the air where a year vibrates off a day or vice versa in the future, a change in trend can be expected.
This is W.D. Gann’s Law of Vibration.
Nikola Tesla said, “If you want to find the secrets of the universe, think in terms of energy, frequency and vibration.”
In these reports, I will be tracking how vibrations from past years and prices vibrate this year where many cycles align.
Drilling down to the short term with the SPY shows that the last significant swing low was 319.80 on September 24.
The Square of 9 below shows that 394.80 is precisely one full revolution of 360 degrees up from 319.80.
As well, these numbers square-out with the end of February.
Green is 319.80 and 394.80
Purple is 375
Blue is 356
Conclusion. I connected the highs since October and paralleled a trendline off the October double bottom.
The geometry of this trend channel is underpinned by the fact that 90 degrees down from last week's record high is 375, which ties to the mid-channel line
And that 180 degrees down is 356, which ties to the lower rail of this 6 month trend channel.
Strategy. Last week, the SPY left a signal reversal bar (a Gilligan sell signal exhaustion bar). Friday, the SPY turned up but is threatening to take out Thursday’s low today which will trigger my Hook, Line & Sell pattern.
Downside follow through below the 20 day moving average opens the door to Moving Average Pinball and the 50 day moving average near 375.
Breakage below 375 points to a drop to the 356-360 region.