PQ was clear in his claims. If you could see past his always entertaining and endearing but bombastic style of presentation, his claims were clear. He viewed cycles as fields of human activity manifested in markets. He boldly claimed to have discovered the wave function of global economic and market cycles. He claimed that the cycles all fit together in a matrix of market action with divisibility by 144.

PQ Wall made a quantum leap in market cycle research. His discoveries apply to both major equity indexes and individual security analysis. To my knowledge, PQ was the first to recognize that economic and market cycles are actually a form of quantum field guided by wave functions. These fields are unfolding in human action that is priced in markets. Instead of space-time, market cycles unfold in price-time. Evidence is growing to support PQ's claim, as indicated in a chart of Intel (INTC) provided below.

First, a more detailed explanation is required. The Kondratieff long wave is a big cycle that explains the boom and bust cycle in the global economy. Wall proposed that the long wave ebb and flow of prices, corporate efficiency, profits and stock prices, when divided by 144, produces a miniature version of the long wave generational cycle. Investors and traders historically know this miniature long wave as the 20-week cycle. This cycle was rechristened the Wall cycle in the 1995 edition of The K Wave in honor of PQ Wall, now out in The K Wave (2012) eBook.

PQ made the radical proposal that every business cycle has nine Wall cycles. The 16 business cycles in the long wave make 144 Wall cycles. The current business cycle has been clicking through the expected Wall cycles. Central bank intervention lengthens the natural cycle. QE is a pesticide of sorts; it works temporarily but ultimately does a lot of damage to the soil of human productivity. By flooding the global financial system with liquidity, the central banks appear to have managed to grow the cycle and buy a higher low in the current Wall cycle #6 within the current business cycle. It appears as if a new global Wall cycle rally is developing.

PQ Wall's theory was tweaked using the 42-month cycle to determine that the ideal miniature long wave "Wall" cycle wave function is 141.9 days, but they fluctuate in price and time by degrees of freedom in Fibonacci ratios of this ideal length. Central bank intervention cannot stop the cycles, but they can make them run long. The most recent Wall cycle is a great example.

The chart below demonstrates price, time and sentiment in Wall cycles 4, 5 and 6 in the current business cycle in Intel . The chart was generated with Market Cycle Dynamics (MCD) software, which runs with Metastock, by Equis, a Reuters company. This business cycle started at the 2009 lows, so the chart below shows the middle three Wall cycles in this business cycle.

Remarkably, you are looking at Wall cycle fields of human action in Intel, which includes everyone, management, employees, investors, customers, suppliers, central bankers, politicians, etc. Cycles are produced by human action in pursuit of purpose. Large cap companies have hundreds of thousands, if not millions of scientists, accountants, investors, operations and management pursuing their purpose.

Market cycles are tracked in price-time instead of space-time. They are essentially a wave function in financial markets. Look at that chart closely. That Wall #4 cycle ran within a few days of a Fibonacci 50% degree of freedom longer than the ideal 141.9 day Wall cycle. The Wall #5 cycle was within days of a crowd pleasing ideal Wall cycle. The 141.9 day Wall cycle is a natural law of market cycles. Wall #6 was within days of a Fibonacci ratio 100% extension of the ideal Wall cycle.

(click to enlarge)

All three of these Wall cycles fit nicely in a 50% extension of one-third of the business cycle, called a Kitchin 3RD. If you do not marvel at what you are observing on this chart, you do not understand probability theory and that investing at the right price and time is a game of odds, and you want to have the odds on your side as often as possible.

Speaking of price, you probably did not notice that recently Intel hammered the Level 2 golden ratio in price at $24.91 and reversed nicely, in addition to the latest Fibonacci degree of freedom Wall cycle time target. Clearly, the truth is much stranger than fiction when it comes to market cycles. Physicists call this sort of field activity quantum weirdness. Investors and traders tracking cycles do not really care what you call it, as long as it works. PQ claimed he had discovered a grand unified theory (GUT) for markets, and beyond.

The deeper meaning of what he discovered are not entirely clear, but keep an eye on that Level 1 23.6% target at 27.11, now the 50-Day moving average in the early going of a new Wall cycle. If this is a fake Wall cycle break out, and a Wall #6 crash is in order, large caps like INTC at junctures like this will tell the story. If the Wall cycle #7 rally is for real, this chart will tell us shortly. You will be amazed at price action around the Level 1 and Level 2 grid targets. Of course, it is nice for investors and traders to have these price and time targets in advance. The grids track the trading algorithms of the quants coding program trading for hedge funds and high frequency traders (HFTs).

There are three more Wall cycles to go in this business cycle. It promises to get much more interesting for cycle trackers into the business and long wave cycle low in 2013. The same debt, corporate efficiency and stock price trends in major market indexes in the big cycles are evident in global franchise large caps like Intel in the smaller cycles. Buckle up, it promises to be a wild ride on the cycles into this business cycle low.

As proposed by the value investor master, Benjamin Graham, the Wall cycle provides a formula timing plan for investors and traders, buyers and sellers. Take a look at any large stable global franchise company, the more dividends the better. You can track the Wall cycles, and their degrees of freedom targets in time, if you know how. You can identify buying and selling opportunities to increase your portfolio alpha.

You can use the ebb and flow of the Wall cycle to snap up bargains on large cap global franchise companies that pay good dividends on a regular basis. Using the Wall cycle as a buying signal reduces risks. However, the current Wall cycle is not a buy and hold cycle. Bigger cycle trouble is brewing in the long wave cycle wave function. Track the cycles to be prepared, but in the meantime use the smaller cycles, Fibonacci grids and stochastics as a formula timing plan in price, time and sentiment.

As far as determining whether PQ Wall discovered the wave function of the grand unified theory, this will have to wait for further research. It will require physicists to explore the mounting evidence in financial markets, but the market cycle dynamics clearly visible in Intel in price-time is a start.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Fed officially informed market participants that its target for inflation is two percent. The Fed is signaling to global markets the message that below this level of inflation, they are within their mandate to keep the monetary spigots open by buying any debt, and therefore we can anticipate additional rounds of QE released from the queue on a regular basis over the next few years if inflation falls below this target.

The CPI, like interest rates, is following its natural long wave trend. It is on schedule to reverse higher in a new long wave spring in 2013 and beyond. Unfortunately and ironically, the Fed's attempt to produce inflation could prolong the deflation by socializing bad debts and weighing down the U.S. and global economy. The CPI annual rate of change below demonstrates the long wave forces at work.

The natural global long wave disinflation and deflation is in the process of clearing non-viable bad ideas out of the global economy with what Schumpeter called creative destruction. QE wants to keep those bad ideas in business, taking profit and reward away from the more prudent and better ideas in the market. The problem is that central banks are pouring trillions of additional debt into the economy when a long wave spring is right around the corner. This creates a real risk of hyperinflation once the long wave winter season is over and a new long wave spring gets underway, a real life bonfire of the vanities.

This is an election year. The Federal Reserves likes to be removed from the economic equation in election years. Unfortunately, in light of a long wave winter season of debt deflation and overproduction in an anti-business political environment, they represent a very large piece of the U.S. and therefore global economic equation. The inflation target announcement is an attempt to put their cards on the table early in an election year cycle, an election year that promises to be driven largely by global economic, financial and monetary policy news.

The more the U.S. Federal Reserve attempts to stop deflation with quantitative easing, the more other central banks around the world are buying gold. Gold is becoming the natural alternative world reserve currency with every new round of QE released from the queue. The chart below demonstrates a Fibonacci projection grid that reflects the desire of central banks and others to boost their gold reserves. Gold is trading like a currency, because it is one. Gold was snapped up as it corrected down to the golden ratio in the projection grid in late December. There is something extra compelling about the forces generated by a golden ratio on a gold chart. The price action of gold is directly related to actual and anticipated QE programs.

The Fed has basically announced that below that two percent inflation number, their balance sheet will keep on growing with new QE programs, including reinvesting the earnings of their growing portfolio and QE3, QE4, QE5, etc. The further inflation drops below two percent, the larger the new QE interventions and debt purchases are likely to be. Markets and investors now have an important piece of the Fed's game plan.

The two percent inflation number represents the level of inflation below which the Federal Reserve will feel additional debt purchases are within its mandate. There is nothing to stop them from going beyond government bonds and mortgages. The Fed has the authority to buy Zimbabwean sewer bonds if necessary. The Fed has enjoyed this power since the Monetary Act of 1980. Let us hope that sort of QE is not deemed necessary as the debt disaster continues to engulf the global economy. The $7 trillion plus, depending on who's numbers you use, that the Fed loaned out in recent years reflects just how far they are willing to go to stop the long wave debt deflation.

The call for another trillion dollars in QE in the mortgage market has already begun. However, there are tens of trillions in debt in the system, much of it potentially bad debt. This debt is in various stages of a great long wave winter season deleveraging. It is presumptuous to think that only a trillion more or so in QE can stop the potential deflation and get inflation back up to two percent.

Unfortunately, as the global debt crisis accelerates, it may take far more than a few trillion in QE to stop the deflation. Will it work? No one knows for sure. It may take $10 trillion or more. Even then, the debt levels are so high that global debt deflation could still get the upper hand, and accelerated deleveraging could and likely will trigger deflation and not inflation. Is there the political will in the U.S. to stomach $10 trillion in QE if that is what it takes to get to the magic two percent inflation rate.

The cumulative effects of the QE in the system has produced a late sugar high in U.S. economic activity that will wear off shortly. When it does, the business cycle is going to turn down hard. Taxpayers know they must be taxed to pay for the debts created by QE purchases of government bonds. This puts a damper on economic activity in the form of a QE hangover, and no one knows where the level of QE triggers systemic shock.

The amount of QE required to stop the deflation will paralyze those that know they will be the ones required to repay the debts produced by QE bond buying. Economic activity will slow, triggering more debt defaults, and more deflation. A vicious cycle and not a virtuous circle will produce only more ineffective debt and more deflation, just like in Japan for the past 20 years.

To track the impact of past and future QE keep an eye on commodities. Commodity prices are a good reflection of how the battle is going between the Fed's QE driven mandate targeted inflation and the forces of Kondratieff long wave deflation that threaten to pull the CPI under two percent and then negative.

Take a look at the chart below of the CRB commodity index. In spite of the trillions in intervention and QE in recent years, the CRB appears to be signaling that deflation and not inflation has the upper hand. Keep an eye on the Fibonacci drill-down grid in the CRB. The Level 1 support at the 38.2% target of 293.42 appears to be critical. If that support goes, debt deflation is laughing in the face of trillions in QE, when tens of trillions in debt is rolling over. Presently the CRB is knocking on the door of the Level 2 38.2% target of 319.76, so QE inflation has the wheel at least for the moment.

In the end, using QE to manipulate inflation rates toward the announced two percent target will not work. The only way to counter the forces of debt deflation will be aggressive pro-growth policies and spending cuts, which will restore confidence to business and investors and get the real global economy moving. Fortunately, the global economy is on the cusp of a new long wave spring season in 2013 and beyond. Aggressive and pro-growth economic policies can mute the natural forces of debt deflation at work in the long wave cycle. Unfortunately, slow growth tax and economic policies are in place now that will slow the coming spring season.

QE programs are a government-sanctioned and central bank administered process of shifting financial risks and losses from the parties that created the risks and losses onto innocent parties, the taxpaying public. Essentially, profits are being privatized and losses are being socialized on a massive scale. By shifting bad debt from private hands onto taxpayers and extending the maturities on the debt, the central banks are essentially shifting the financial risks onto the unsuspecting public in a future cycle. QE lengthens the cycles, but it does not stop them. The long wave, business cycle and trading cycles are simply expanding.

The expectation had been for political constraints to keep unlimited QE in check in the United States and globally. Clearly, the politicians are giving central bankers a green light and free reign to continue the QE and shift the risks onto the public. Based on statements, it would appear that no limit on QE is on the table. Essentially, trillions more in QE is not out of the question.

Political forces could still emerge to constrain the central bankers, but this is growing less likely. If political forces do not emerge to put a limit on the QE, although deflation remains the most likely outcome, the risks of a deep debt deflation V shaped crisis is declining. It is clear that the central banks are willing to use QE on an unlimited basis. Trillions in bad debt will be transferred onto the public in the final phase of this long wave winter season. The coming long wave spring will be a shadow of its true potential for global growth due to the maturity on the debts being extended and shifted into the next long wave cycle.

If the central banks show restraint, it is possible that pro-growth policies, combined with a global long wave spring season, the economy will start to turn the corner by mid-2013. However, without fiscal constrain and responsibility, and if excessive QE is on the balance sheets of central banks, it will turn into an inflationary force that will do great damage.

By mid-2013, after multiple additional QE programs in pursuit of the two percent inflation target, the amount of QE in the system may be so high that it threatens the foundations of the global economy. The Fed and ECB will both likely engage in QE in pursuit of the illusive two percent inflation target. The QE attempts to stop global debt deflation will likely turn into hyperinflation.

If PQ Wall's interpretation of Oswald Spengler's cycles in The Decline of the West were correct, this is the ninth and final Kondratieff long wave in the fall season of western civilization. He believed that the winter of western civilization lies directly ahead. Like the White Witch in the Chronicles of Narnia who cast a spell and created an unending winter in the land beyond the wardrobe, the central bankers are in danger of creating a perpetual long wave winter season. Unfortunately, instead of a new long wave spring, with too much QE, a perpetual winter and a new dark age is possible.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

However, before you dismiss IONS’ mission as too nebulous and esoteric to apply to real life, you should be aware that some of the ideas they espouse might actually have an application to global financial market cycles and are worth considering. Some of the research at IONS may have implications for decision making for investors and traders. In particular, their research in the area of morphic fields may be relevant to identifying and understanding social behavior and the lows and highs of financial market cycles.

The idea of morphic fields is largely the product of the research of Rupert Sheldrake, a Cambridge trained Ph.D. biochemist that has discovered self-organizing properties in the field of biochemistry that coordinate, organize and provide the constituent parts to a biochemical process or system. He calls these self-organizing properties morphic fields. These fields are present at each level up the food chain so to speak at the level of cells, tissues, organs and organisms.

After recognizing that morphic fields shape development of organisms, Sheldrake makes a quantum leap and suggests that morphic fields may govern the self-organizing properties of social groups. Sheldrake proposes that at each level a morphic field essentially provides for the instructions for the development and characteristics of a new level or “whole” in a system. What he has concluded is that this morphic field process works all the way up to the level of society, cultures and therefore invariably the structure of the constituent parts of a civilization.

Regarding quantum leaps, in his article entitled Fields of Form, Sheldrake notes that a few physicists are intrigued with the possible connection between morphic fields and quantum fields, including John Bell and David Bohm. Quantum physicists Amit Goswami and Han-Peter Durr have also explored the connections between quantum fields and morphic fields. In the future, connections between quantum fields and morphic fields may be established, but remains unclear at present.

Market analyst PQ Wall what ahead of the crowd when he proposed that market cycles are essentially both quantum fields and morphic fields. His proposition remains to be fully confirmed, but the prospects for this perspective providing clues as to where markets are headed next are promising to date.

Investors and traders will recognize that global market cycles exhibit self-organizing properties and characteristics that may indicate they are exhibiting morphic field activity. The concept of morphic fields directing the development of self-organizing systems has serious implications for anyone that wants to understand what drives trends in the economy and the flows of funds in global markets, producing bull markets and bear markets in stocks, interest rates and bond prices.

Global financial markets clearly play a role in the self-organizing system known as the global economy. You can view financial markets as a sub-system in the global system of international political economy. They are a rather important sub-system. When they are not operating effectively and efficiently, or when fiscal and monetary intervention short-circuits and distorts their self-organizing properties, it can produce major problems and dislocations for society. Civilization itself can even be destabilized. If the feedback loops and messaging signals the system depends on for stability are not reliable, the system can break down.

Russian economist Nikolai Kondratieff may have discovered, when he saw a clear pattern in interest rates, prices and production in market economies, is a self-organizing whole or morphic field in the international system. Kondratieff appears to have discovered the essential cycle produced by morphic fields of human action in the international political economy.

The long wave represents a self-organizing system that is the result of morphic fields in human action. Kondratieff appears to have recognized this when he wrote, “The long wave, if existent at all, are a very important and essential factor in economic development, a factor the effects of which can be found in all the principal fields of social and economic life.”

Below are a few of Kondratieff’s original research charts. When Kondratieff observed these charts he saw something akin to morphic fields of global economic development in prices, production and interest rates. There are those that think the great cycle or morphic field was a figment of Kondratieff’s imagination. Look at Kondratieff’s charts. You be the judge. You have powers of observation, reason and deduction. Either the long wave is real or not. If it is real, it does exhibit what appears to be a field of global human activity that by definition involves human consciousness, so maybe IONS is onto something that was first discovered by Kondratieff in economics and markets.

Take a look at the chart below of U.S. interest rates. It sure looks like a repeat from 1949-2012 of the long wave trends in interest rates Kondratieff recognized in his research. It also suggests that the greatest bull market in bond prices may be close to being over sometime from 2012 into 2013.

PQ Wall was a student of Kondratieff long waves and is the first person to apply Sheldrake’s work on morphic fields to market cycle analysis. What Wall proposed was that the economic long wave is a whole level in terms of social activity in a morphic field. Far more important for investors and traders, Wall proposed that a long wave is made up of parts, which are in turn lower-level wholes themselves. PQ Wall essentially proposed the basic math of the morphic fields of global financial markets.

The market cycle math is a bit more complex than this, but Wall proposed that if you divide a Kondratieff long wave by 144 it produces the next level of whole in global market activity. These approximate 20-week cycles are the next level of whole below a long wave. In honor of PQ, I rechristened these cycles as Wall cycles in my 1995 book, The K Wave. Wall discovered that a long wave divided by 144 is the next “whole” morphic field that shapes social behavior and therefore is critical to understanding market cycles and their development.

The Wall cycle is made up of constituent parts just like the long wave. Where the long wave has seasons, the Wall cycle has Quarter Wall cycles. The 16 business cycles in the long wave show up as the 8.8-Day cycles in the Wall cycle. What PQ Wall proposed is that the next whole level of morphic field below the global long wave gives the Wall cycle its characteristic properties and coordinates the constituent parts of the cycle. That is why the Wall cycle, just like the long wave, shows up in almost any global market chart. Sometimes they are distorted by fiscal and monetary intervention, but they are always there, lurking right under the surface of human action, morphing from oversold lows to overbought highs and back again, a form of human action and financial market clockwork.

The chart below demonstrates the Swiss Market index in Wall cycle #5 of the current business cycle. The chart used Market Cycle Dynamics software to run an exact ideal 141.9-day Wall cycle from the March 2011 lows and also the Quarter Wall cycles of 35.4-days inside the Wall cycle. The Wall cycle does not always unfold in this close to ideal manner. They sometimes run long or short, but Wall proposed that there are 144 in a global economic long wave cycle. The evidence is mounting that he is correct. A Wall cycle is essentially a miniature long wave and the next level of whole unit in the self-organizing international political economy, and therefore all of human society.

Below is the current Wall cycle chart of the S&P 500. It is demonstrating in price, time and sentiment what appears to be the current next level whole of the 144 morphic fields that make up the current unfolding long wave. Like the Swiss SMI, the S&P 500 Wall cycle low in August was likely the bottom of Wall #5 and the start of Wall #6. The October low is the alternate start date for Wall #6, but the August lows are favorable in many respects. Either way, a Wall #6 cycle low is due shortly. The current Wall cycle is likely running long due to large amounts of deficit fiscal spending and central bank monetary intervention that is attempting to stop the cycles. The intervention only makes the cycles run longer. The morphic fields of market cycles appear to run long and short by degrees of freedom in Fibonacci ratios in time, similar to the forces exhibited by Fibonacci ratios in price action.

It is becoming evident that what happens in Shanghai can have a direct impact on what happens in New York. The threat of a Greek default sends shockwaves through the entire system of the international political economy. When the U.S. Federal Reserve launches QE2 or the ECB injects $645 billion into the financial system, it does have an impact on the cycles, but through all these interventions the self-organizing long wave and its 144 Wall cycles are ebbing and flowing. They may well reflect morphic fields that organize the development of society and produce order out of what often appears to be the chaos of human action.

If the economic long wave is a large morphic field and cycle and very few will ever experience more that one cycle in their lifetime. It can provide some general guidance to investors and traders on the big trends. The Wall cycle on the other hand ebbs and flows with highs and lows several times a year. Each time the Wall cycle hits the cycle lows it provides an opportunity to buy and when it hits a high, it provides an opportunity to sell.

Much remains to be learned about the morphic fields that play a role in guiding and directing the international political economy. If they are guiding the global forces being unleashed in the current Kondratieff long wave winter season, then the crisis now sweeping global markets provides a unique opportunity to study these morphic fields of human action.

Market cycles, from the long wave down to the Wall cycle provide a market cycle driven formula timing plan that identifies opportunities to buy and to sell using price, time and sentiment. Combining Fibonacci in price, market cycles in time, and stochastics for sentiment you can track the morphic field that produce and guide the Wall cycle. The goal at LongWaveDynamics.com is to track the cycles for investors and traders, in order to provide relevant cycle input to help them maximize their potential.

PQ Wall may have been correct, and morphic fields do in fact produce market cycles. The Institute of Noetic Sciences’ goal of maximizing our human potential is possible, at least in the area of investing and trading, by applying morphic fields to tracking market cycles. Get prepared, because the current long wave morphic field requires a major global readjustment to correct the cycle excesses in debt, production and prices that is now underway. In addition, the next level of long wave morphic field whole in the current Wall cycle is setting up to deliver an educational fieldtrip for investors and traders.

The Wall cycle is must track cycle for investors and traders, while for unsuspecting investors and traders it is a recurring nightmare. The Wall cycle regularly discounts market prices and provides regular buying and selling opportunities for value and growth investors.

The evidence is mounting that PQ Wall was correct and that every business cycle contains nine smaller cycles. This fact is particularly relevant at this time. PQ Wall taught that cycles 3, 6 and 9 in every business cycle are the weakest cycle at the end of every third of a business cycle.

The Wall cycle is a timely topic because major developed global markets are currently hitting Fibonacci price resistance at the top of Wall #6. From the March 2009, global market lows there have been five full Wall cycles. Global markets are now testing the top-end of Wall #6, and many appear to be rolling over. The collapse of Wall #6 may be one for the record books.

The global Wall cycle picture is mixed. Over-the-top fiscal and monetary intervention and artifical support of markets is distorting sentiment readings. However, the August lows have held in the NASDAQ 100, the UK FTSE 100, the Swiss SMI, the Australian ASX and a few other developed and emerging markets and sentiment has now reached overbought levels, indicating Wall #6 is ready to decline.

The chart below demonstrates the dynamic clockwork of the price, time and sentiment in the six Wall cycles in Switzerland’s SMI since the March 2009 lows. The 20-to-80-to-20 runs in the stochastics are the 8-period weekly fast. The chart also demonstrates that the SMI is now attempting to stay above the golden ratio Level 2 Fibonacci grid target at 5639. The Level 1 grid comes from the most important Level 1 high and low that demonstrates Fibonacci turns. When important Level 1 and Level 2 Fibonacci support targets give way in any market, it often marks the turn of a Wall cycle at a top or bottom. A break below the Level 2 golden in the SMI is expected to accelerate the decline of Wall #6, with other major markets at critical Fibonacci support and resistance levels.

Market analysis that seeks to uncover the cycles driving global markets is a tough job when governments and central bankers spending other people’s money (OPM) fire trillions in U.S. dollar and euro bazookas randomly into markets. The deployment of large sums of capital without the conviction and discretion of the true self-interested earner and owner of the capital distorts markets, attempting to shift risks into the future. It can accelerate declines when they finally come.

Intervention is clearly distorting the cycles, but the primary cycle count remains that global developed markets are topping in Wall Cycle #6. Global markets now face a third, last and weakest Wall cycle decline. Despite the call of the bulls and some of the tempting evidence in their favor, such as the power of the large cap franchise companies to deliver profits, the path of least cycle resistance is down.

The S&P 500 chart presented below demonstrates that Wall #3 was far weaker than the other cycles into the July 1, 2010 low and the golden ratio Fibonacci supporting floor. The stochastics are 55-period daily fast. The market declines into October in many developed markets are candidates for a third, last and weakest Wall #6. However, the weight of the global cycle evidence and the acceleration of the debt crisis in Europe and in the U.S., indicates Wall cycle #6 remains in force, with the greatest declines straight ahead.

The rally from the October lows appears to be an elaborate bull trap set by Wall Cycle #6. If the current Level 2 Fibonacci 76.4% supporting target of S&P 500 1228 does not hold, the decline could take on a life of its own. The S&P 500 summer 2010 lows at 1013 in the S&P 500 may require a test. It is possible they will fail. In short, get prepared for the collapse of Wall #6. It has the potential to shake global financial markets to their foundations.   

Make no mistake about it capitalism is in peril. Occupy Wall Street demonstrators realize that the current system of crony capitalism is rigged. They intend to bring it down. However, before you throw in with the Occupy Wall Street movement, be aware that there are more forces afoot than being reported. An ill wind is blowing into the void produced by decades of failed policy. Far more radical elements than most are aware actually anticipated this global long wave debt collapse, and they are now seizing the day. Their plans are not a spontaneous movement of workers frustrated by a shortage of jobs and taxpayer funded banker bonuses. They have bigger fish to fry.

Sure, the big banks are some of the biggest offenders in the current rigged system of crony capitalism, but they are not alone. The corruption, graft and greed are widespread. Many major corporations pay little or no taxes. They have secured their markets, revenues, and profits with tariffs, subsidies, loopholes and government contracts. Small businesses and entrepreneurs are in the trenches, creating most of the jobs in the global economy, paying higher taxes than the global franchise companies do. In the ancient Greek tradition of Atlas, they are carrying the weight of the world on their shoulders, a weight produced by politicians gone wild and their big business benefactors. They will not shrug off their destiny; they have their own revolutionary agenda.

The focus of all the attention of the Occupy Wall Street movement is the big Wall Street banks that levered up and gambled with taxpayer-insured deposits. They lost big in global financial crisis of 2008-2009. Instead of punishment by the market for their failure and getting shutdown, broken up and divvied out to the many excellent and responsible bankers, most have now doubled down. They paid off their political stool pigeons, paid out bonuses for failure, and kept the taxpayer backstopped global debt poker game going, just a little bit longer. If they had engaged in these speculative activities with their own capital that would have been one thing, but they did so with taxpayer-insured deposits and minimal capital reserves. If bankers want to become hedge funds, more power to them, but taxpayers should not be at risk. The game of reshuffling the bad debt has now entered a new and dangerous phase; the stakes are higher than ever.

Governments are now the house, fully insured by taxpayers, since no one believed governments, let alone the world’s only superpower, the United States, would commit financial suicide. Not fully appreciating the contradictions of the Keynesian mantra of government spending and borrowing, they failed to recognize that governments would also run out of money in a long wave global debt bust of demand destruction and dwindling tax receipts. Now the governments are in trouble, even the U.S., and the world teeters on the edge of the abyss once again.

Crony capitalism became dominant only late in the 20^th century, and is now unraveling rapidly, as evidenced by the folly of taxpayer loans to crony capitalists like Solyndra management, that couldn’t even survive 6 months on $500 million hard earned American taxpayer dollars. They even stiffed their lobbyists. It is a sad affair, but similar in many respects to the story of the Roman Empire. The redistribution of wealth in Rome was to both the financial elite class that bought off the politicians for their loopholes and exemptions to keep from paying their fair share, as the entitlement class was appeased with bread and circuses. In hardly a generation, they forgot the simple pleasures of a good steak and beer earned by the sweat of their brow.

The great working middle-class of Rome paid the tab, until they buckled under the load. A system where losses are socialized and passed on to taxpayers, while winnings are privatized and go into the pockets of an elite financial class was clearly dysfunctional and destined for failure, so the Visigoths poured in and plundered. Rome was sacked, passing the destiny of humanity to the Renaissance and our civilization, which has now lost its way. The politicians and the captains of crony capitalism sowed the wind. They are now reaping the whirlwind.

The bankers are quick to explain that they have paid back their TARP loans. However, ninety-six year old grandmother Barker will explain to you that it was done with zero rates on her deposits. She was paid nothing on her savings, while the bankers in the form of government bond purchases loaned her life savings, some earned during the last depression, to the politicians. A small spread on trillions in savers accounts around the world has added up to a bailout that rivals and may even be bigger than TARP before it is over, largely paid for by retirees that have paid their dues to society.

The system of international crony capitalism has lasted only a few decades before it has begun to crumble due to its internal contradictions. However, the fraud is now recognized. The open “in your face” corruption was too much, and the demonstrators now march in the streets. It will not end here. Demonstrators invariably become protestors, who become rioters, who will embrace the growing call for revolution. It took decades, but by abandoning the basic and fundamental tenets of free market capitalism, political and business leaders have jeopardized the entire international political economy. They have delivered the global system to the doorstep of a socialist revolution.

World leaders and their economic advisors do not appear to recognize the backside of a long wave debt cycle, even when they are sliding toward bankruptcy, default and ruin. They propose even more debt to solve a debt crisis. The economic long wave cycle is essentially a natural boom and bust Jubilee debt cycle that swings from the debt build up boom phase to debt deleveraging bust phase. The deleveraging can be a painful affair for all involved, but it must occur in order to move into the next long wave spring.

It is certainly not the entire movement, but observers need to be aware that there are those involved with the Occupy Wall Street movements that have a socialist revolutionary agenda. There are socialists that understand the fundamental forces at work in the economic long wave, unlike their Keynesian brethren, and therefore are exploiting the forces at work in this crisis in an attempt to drive the final nails in the coffin of international free market capitalism. They actually advocate using each long wave wither season crisis to move closer to the final crisis of capitalism in the near future.

There is a school of thought in international political economy that recognizes the powerful force that the long wave exerts on global economic activity and political trends. Immanuel Wallerstein created the world-systems analysis approach to international political economy. He proposes that we have been in a world economy, which throughout history and the rise and fall of civilizations has tended to give way to a redistributive world empire. Rome is the great example of this progression as discussed.

The crony capitalism that emerged late in the 20^th century, looks a lot like Wallerstein’s redistributive world empire, where risks are socialized and bread and circuses pacify the increasingly restless and desperate masses. However, the entitlement dependent groups of the civilization are only pacified to a point. Wallerstein and most of those that adhere to the world-systems analysis approach have socialist leanings. Wallerstein and others believe that during this current long wave winter crisis phase capitalism can be forced to compromise. It can be weakened sufficiently during this crisis, then during the next long wave winter crisis the final coup de grace for capitalism can be administered, and a final socialist revolution will sweep the globe, drowning the last capitalist in a sea of debt and the inability to generate a profit.

Wallerstein insightfully identifies three key costs of the capitalist system. He recognizes that if these costs are increased sufficiently, it will result in the crippling of capitalism, bringing it to its knees. When this occurs, a new socialist world system can step in and take its place. Wallerstein identified 1) taxes, 2) raw material costs, and 3) labor costs, as the three key input costs of capitalism. He recognizes that if they can be increased, these rising costs will eventually choke the profits and life out of capitalism. A new socialist system, that has yet to be invented, will then emerge. Wallerstein has nailed it. These three costs are the key to the survival of capitalism. If these three costs are allowed to rise beyond a certain point, profits are destroyed and the capitalist system ceases to function. The long wave winter crisis is when protests allow the socialists to seize the day and raise the key costs.

There are elements in the Occupy Wall Street movement that are seeking to take this crisis opportunity to cripple capitalism. Note the signs and interviews of the Occupy Wall Street movement. The themes are consistent; 1) higher taxes, 2) anti-carbon and carbon tax advocacy, which will radically raise the raw material and production costs to all of capitalism, and 3) higher wages that are not based on productivity and merit but need. Public and private unions are bankrolling the movement.

Wallerstein, by pointing out the three costs that can be used to drive capitalism into the ground, has also effectively indentified the three key costs that can be targeted to not only end crony capitalism, but restore true international free market capitalism and produce the next global long wave boom. Those that want to end crony capitalism and return to true free market capitalism must join the fight for; 1) lower corporate and individual taxes, 2) reduced material costs through free trade and reduced regulation, and 3) performance and merit based pay.

By reversing Wallerstein’s three costs to capitalism, a return to rapid growth and a genuine form of international free market capitalism can be achieved. Occupy Wall Street demonstrators are right, crony capitalism must be abandoned. If it is, job growth and standards of living will boom in the coming long wave spring season, but only if the right policy decisions are made.

Wallerstein’s diagnoses is actually correct, the days of crony capitalism are numbered. Leaders have been weighed and found wanting. By correcting their mistakes and reversing all three of the key costs to capitalism, a new golden age for international free market capitalism will dawn. In my book Jubilee on Wall Street, An Optimistic Look at the Global Financial Crash, this path out of this long wave winter season was termed The Great Republic. Yes, a new golden age is not only possible; odds are rising rapidly for this outcome.

Investors and traders need to realize that global markets are facing great danger. Free markets are essential to price discovery and a well-oiled and optimally functioning global economy. The ultimate outcome of the growing Occupy Wall Street movement will have a major impact on your investments. Tracking market cycles, including the long wave and the business cycles, is more important that ever. Political decisions could do massive damage to global financial markets, and that’s exactly what some want to see happen.

President Obama needs to be careful throwing his hat in the ring with the Occupy Wall Street crowd without fully understanding all the forces at work, and their objectives. It could do more harm than good to his legacy. His pandering to protestors is a bit ironical in that his cuddling up to crony capitalist to fund his reelection war chest has even trumped that of his predecessors. However, it now appears that advocates of a new golden age for international free market capitalism and the rise of The Great Republic have a new champion for their cause.

The U.S. presidential campaign of plain talking and straight shooting businessman Herman Cain appears to best represent the potential to bring about an end to the redistributive world empire and crony capitalism. Massive tax reform is required to ensure a long wave spring season and trigger a global boom. Cain may be able to convince both the left and the right of a better way.

World-systems analysis suggests that crony capitalism will crumble during this global crisis, and the future of civilization is either a socialist revolution or alternatively, the dawn of The Great Republic and a new golden age. History is about to be made. Buckle up; it will be one wild ride as we sail deeper into the global long wave winter financial crisis and the U.S. election year of 2012. If Herman Cain drops the torch, a third party will likely be waiting in the wings to take his place, viva la revolution.

Many have taken issue with both the efficient market hypothesis and the random walk hypothesis. Of course, the most notable is Warren Buffet, who said. “I’d be a bum on the street with a tin cup if markets were always efficient.” Clearly, Buffet’s performance has demonstrated that markets are not efficient, as he has consistently beaten the averages. His $5 billion dollar bet on Bank of America may help him revert closer to the average, but here we digress.

What Buffet is suggesting is that there are methods of analysis that allow an investor to beat the market, and have allowed him to do so handily. Buffet applies methods of value investing analysis, and good gut instincts on management, to beat the averages. It was Warren Buffet’s mentor, the world-renowned value investor Benjamin Graham, author of The Intelligent Investor, who advocated investors develop what he called “formula timing plans”, to determine optimal times to enter and exit value-based investment selections. The following is what Benjamin Graham had to say about formula timing plans:

“I am more and more impressed with the possibilities of history’s repeating itself on many different counts. You don’t get very far on Wall Street with the simple, convenient conclusion that a given level of prices is not too high… In recent years certain compromise methods have been devised by which the investor can take some advantage of the stock market’s cycles without running the risk of an unduly long wait or of “missing the market” altogether. These are known as Formula Timing Plans.”

Benjamin Graham is clearly suggesting that market cycles be used to identify opportunities to buy and sell, and the mounting evidence in the field of market cycle dynamics suggests he is correct. He was clearly referring to applying various methods of technical and fundamental analysis that allows the identification of what Ecclesiastes refers to as, “A time to buy and a time to sell.” Benjamin Graham proposes a formula timing plan in addition to applying principles of value investing. This idea runs highly contrary to the concepts behind the efficient markets hypothesis.

Value investors have clearly been punished along with all other investors in recent years for not recognizing the market cycle dynamics at work. The question for all investors, and certainly traders, is whether there are methods of technical analysis that allow you to identify entry and exit opportunities in price and time consistently enough to allow you to beat the averages. Technical analysis essentially proposes that there are in fact methods that can be added to various investment approaches to create a formula timing plan to beat the averages.

PQ Wall was fond of saying, “Pattern is the sunlight of the mind.” Technical analysis basically proposes that there are patterns at work in markets that allow an investor or trader to anticipate and identify market turns in advance. Technical analysis recognizes that there are technical patterns that can override the fundamentals of a market or specific security.

There are an almost unlimited number of methods of technical analysis applied by both investors and traders seeking to improve their odds of beating the market averages. There is tick, trend, Fibonacci ratios, Elliott waves, Gann fans, advances/declines, accumulation, moving averages, moving average convergence/divergence (MACD), and the list could go on. Many technical analysis practitioners have proven to apply technical methods to beat the averages with different formula timing plans.

Investors and traders should identify and develop a formula timing plan that suits their investing style and philosophy. It should be a plan that has proven over time to identify opportunities to buy and sell on a consistent basis. After studying the technical market masters for decades, I have developed Market Cycle Dynamics (MCD) formula timing plan as a relatively straightforward method with the goal of identifying when to buy and when to sell. It can be applied by both long-term investors and short-term traders.

MCD uses 1) price, 2) time and 3) sentiment to anticipate turns in any global market or security. For price, MCD uses new Fibonacci methods and drill-down price grids to identify high probability multi-year or intraday price target turns. This is similar to the Wyckoff method that identifies support and resistance lines, only MCD uses Fibonacci grids and price targets. Specific Fibonacci grid targets provide specific and clear entry, exit and stop loss prices. However, time can be just as important as price. MCD uses a new method of time cycle analysis based on ideal time cycle lengths and their Fibonacci ratios, which have been studied and documented for years. For market sentiment, MCD uses stochastics, which can identify when a market or security is making a high probability high or low.

When a market index or a security is approaching an important Fibonacci price target in a “hot” Fibonacci price grid that has identified turns in the past, you should always pay attention. If this is occurring in a time cycle window where you are looking for a top or a bottom you need to pay closer attention. If price and time has your attention and stochastics are indicating that the sentiment of investors and traders is overbought or oversold, you have an opportunity to take action and beat the averages. Can you do it on every investment or trade? No, but a solid formula timing plan will help you preserve your capital, increase your risk adjusted returns, and you can do it often enough to beat the averages.

Global markets are in the final business cycle of the Kondratieff long wave. The chart below is an example of price, time and sentiment in the rally since the March 2009 lows. You can clearly see where price, time and sentiment converge to trigger a high or low in the market at an important turn. These targets are where the MCD formula timing plan provides you with an opportunity to buy or sell. The chart demonstrates the unfolding cycles tracked by the MCD formula timing plan. Note the high and low levels in the stochastics as the S&P 500 approaches Level 1 Fibonacci grid targets. Mr. Market is currently trying to put together a rally in the latest Wall cycle, but this is Wall cycle #6, and is expected to be a third last and weakest cycle that tops early and dies hard. It will be a short cycle unless QE3 comes to the rescue.

Applying the MCD price, time and sentiment approach to an individual security is demonstrated in the chart below of Proctor & Gamble (PG), a large cap global franchise company with a higher dividend than most companies. The chart demonstrates an ideal Wall cycle in time, the Fibonacci Level 1 and Level 2 price grid, and investor and trader sentiment in the daily 55 period stochastics. The low in August created a buying opportunity, but the rally from that low met resistance at the Level 1 76.4% target price of $63.62 with stochastics approaching overbought status again. In light of the larger cycles putting downward pressure on global markets, long-term holds are generally not advised at this time.

Just looking at the business cycle and the smaller cycles is not enough. There are now forces in play in the current global economic crises that are much larger than the business cycle, name the long wave winter season. They are putting great downward pressure on the business cycle and global markets. Great caution is advised for investors and traders.

While we are on the subject of the efficient markets hypothesis and the random walk, the chart below of Australia’s ASX is of interest. The chart is a 1-minute intraday chart of the Level 3 and Level 4 grids. These grids are generated using the 1991 Level 1 low of 1202.54 and the 2007 high of 6873.20 and drilling down to the Level 3 and 4 grids. That price action and the 21 period 1-minute stochastics don’t look very random to me. It looks like a combination of natural Fibonacci forces and computer programs. This is an intraday version of what happens in the larger cycles.

If market price movements are efficient and random, and their direction cannot be predicted, why is the ASX finding support and resistance turning intraday on the Level 3 Fibonacci grid prices with precision? The answer is twofold. First, Fibonacci ratios are a natural occurrence in markets, and second, the quantitative analysts “quants” that write the computer programs use the Level 1 highs and lows and Fibonacci ratios in their algorithms. MCD provides quant-busting power to investors and traders by drilling into the Fibonacci price grids.

Finally, the DAX is of particular interest for the MCD approach. It is remarkably oversold due to the European sovereign debt crisis. Most markets held earlier August lows, while the DAX has dropped through the Level 1 golden at 5542, which was critical support and is now critical resistance. If the DAX falls through the Level 2 76.4% target at 5161 and then the 61.8% golden ratio target at 4926, the European debt crisis may envelop the world sooner rather than later. Alternatively, price, time and sentiment suggests the DAX is spring loaded for the Wall #6 rally. Either way, investors and traders have specific prices for entry, exit and stop losses to take action. If the DAX rallies here, Wall cycle #6 is expected to die young, hard and fast.

Investors tracking large cycle turns and traders tracking small cycle turns to buy or sell can apply the MCD approach of price, time and sentiment to any global market or security. Tracking the market cycles in price, time and sentiment as an investor or trader can increase your odds of beating the averages, debunking and helping send the efficient markets hypothesis to the dustbin of history.