A mathematical pattern visible among US financial panics and recessions could be pointing to 2021.
Did you know the US has had more recessions than presidents throughout its history?
In fact, the recurrence of panics, recessions, depressions, and economic troubles is by no means a foreign concept in US history. And with the count currently at 47 recessions to 44 presidents, the economic roller coaster is not likely to stop anytime soon; it is always on the verge of another gut-wrenching drop. But a mathematical sequence observed for almost 1500 years may help us predict when the next critical juncture should be expected.
More popularly known as the “Fibonacci Sequence,” the mathematical pattern first discovered by Indian mathematicians in the 6th century and later introduced to the West by Italian mathematician, Fibonacci, has been observed in everything from tree branching to waves to stock prices. It seems to be a natural ratio that has even been found in the Pyramids in Egypt and the works of Leonardo da Vinci.
The pattern is fairly straight forward: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so on. What you’ll notice, is that every number is the sum of the two numbers preceding it (21 equals 8+13, for example).
Back to our main point, if we apply this sequence to financial panics and economic recessions throughout US history we may be able to form a useful pattern to predict future panics. And I have done just that – I have compiled a list of every panic and recession in US history and applied the Fibonacci Sequence to see if any patterns emerge.
Here are the results:
click on charts to enlarge
What I found, was that if we applied the sequence to years of severe panic or market peaks (pink/tan color) or to years where recessions ended or the market bottomed (gray), the numbers that came up as results were pivotal years sometime in the future. In other words, applying the sequence to panics and recessions seems to predict future panics, recessions, or recoveries.
My method was as follows:
1) Compile a list of all Panics, Recessions, and Depressions in US history.
2) Starting with 8, and going all the way up to 233 in the Fibonacci Sequence, add each number in the sequence to the year the panic or recession took place.
3) Note when the resulting numbers (after applying the sequence) correspond to a panic or recession that took place in the future.
4) Highlight the results as to whether they called a future “panic top” or “recession bottom.”
5) Use the most important years to predict important years in the future.
In fact, using this method would have signaled a warning for 1865 (end of the Civil War and beginning of a recession), 1929 (Great Depression), 1987 (stock market crash), 2000 (technology bubble peak), and 2008 (recent financial meltdown) just to name a few!
Most importantly, however, if we use these important years of panic and recession and try to predict future pivotal years, it appears that 2021 and 2042 (+ or – 2), show up again and again.
For further confirmation, see the following chart which maps out the Benner-Fibonacci cycles since 1902:
You’ll notice that this chart would have predicted the 1929 crash, the 2000 tech bubble peak, the 1987 crash, and 2003 bottom just to name a few. And as we extrapolate into the future, the cycle analysis seems to be confirming the Fibonacci chart I compiled above – 2021 and 2041 appear as “major troughs” on the cycle analysis after showing up as the two major years in the Fibonacci chart.
Recessions and economic downturns are driven by changes in regulatory, trade, fiscal, and monetary policies, as well as cycles in agriculture, business, consumption, and wars. They, in turn, generally bring about a significant decline in economic activity, GDP, employment, and industrial production. In other words, panics and recessions are triggered by multiple variables which in turn affect other parts of the economy and the population. And recessions are usually not predictable, which is why panics unfold as the devastating news reaches the public. But if we apply the mathematical pattern observed in the Fibonacci Sequence to the major panics and recessions in all of US history, it appears that a pattern does emerge – and it fits very well by predicting future panics and recessions. If it did such a good job signaling important years in 1929, 1987, 2000, and 2008 (just to name a few), I'd say probability is on the side of 2021 and 2042.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.