Fibonacci Fate Date for a Bear Bond Market?

One of the greatest technicians of all time was a man named W. D. Gann (1878-1955). He had tremendous success predicting market moves much in advance. Legend has it that he occasionally sent notes to The Wall Street Journal, which accurately predicted tops and bottoms in grain markets months ahead of time.

There are two Gann principles that I have always respected. They are that historical prices alone aren’t predictive unless paired with time; and that the “birth dates” of contracts are of major significance. The birth date is the first day a contract, stock, or grain begins trading. And birth dates that occur during "Fibonacci" years are even more significant. The larger the Fibonacci number, the more significant.

Leonardo Fibonacci, the great 13th century Italian mathematician (1175–1250) created the “Fibonacci sequence” to explain behavior in nature mathematically. History has it that the first question he posed was how many rabbits would be created in one year starting with one pair.

On August 22, l977, the Chicago Board of Trade started trading 30-year bond futures. This year, August 22 falls on a Monday. It will be the THIRTY-FOURTH ANNIVERSARY (34 is a Fibonacci number). My goal is not to make a market prediction as much as to share a fascinating possibility.

The next Fibonacci number is 55, it's a difference of 21, which could determine the length of the next cycle. If this Gann cycle is accurate, it may mean a cycle high in price, a cycle low in rates in the Treasury complex could occur possibly on August 22, or thereabouts. Another way to look at this would be, that it may be the BEGINNING OF A 21-YEAR CYCLE in lower prices, higher rates.

Your #2 is something that went by the wayside from too many professionals in the mid 90’s through the 2000’s. It seems that dividends went out of style as everyone wanted to go ga-ga over pure growth plays.

This even has rippled through into public policy. eg, I’ve never understood why there is double taxation of cash dividends. To me, a company paying a cash dividend is one of my best defenses against accounting fraud by the company. If they’re paying a dividend, then I should be able to see it ripple through their SCF and balance sheet appropriately - and if I don’t, then that’s a huge red flag.

But let’s put that particular issue aside. The reason why I have a knock on “buy and hold” is that a mindset of buy and hold (or more accurately, “buy and ignore”) grew up in the years of ‘83 to ‘00, when we had this wonderful, long secular bull run. During this period, a buy-and-hold approach worked fantastically well - even through the market crash of ‘87, when we step back away from the half-year carnage. No doubt about it, buy and hold was a sound approach in that market environment. At the start of that bull run, fees were still ferociously high, trading was expensive and decidedly not something one could do easily off the exchanges, etc. By the end of that run, the entire environment had changed to make trading much more viable for the retail investor.

The problem IMO is that these long secular bull markets do come to an end, and investment pro’s offering advice to the retail public haven’t modified their “buy and hold” advice in the light of markets like the last 10 years, where we chop up and down, back and forth, without a long (decade+) secular trend. Further, the pro’s want to ignore the historical evidence that following debt deflations (ie, what we’re now seeing), the market can take a long time to re-establish a trend. A decade or more or chop could from here be in the offing. Following the crash of ‘29, we really didn’t see the market behavior even out and settle down until about 1949, if we’re looking at a chart of the DJIA.

IMO, people have to be ready to get in and get out of the equities/bond/commodities markets at the appropriate times for some number of years to come. It isn’t helping that we have a clown posse’ in DC right now, making policy by having LSD parties in the parking garage, but the markets now clearly have the attention span of a goldfish and that means that gains appear and disappear in the space of a couple months - not years. I’m not suggesting that people would be well served by day trading (which seems like a fool’s errand in the era of HFT), but getting out when you have gains and things start to roll over as they did last week? Yea, that’s a suave idea. Short term cap gains rates be hanged - having cap gains at all is a nice problem to have, IMO. Tax efficiency is an afterthought.

re: your #3: This is why I learned how to run my own money. I finally got tired of paying those fees to an incompetent “professional” and learned what I know now. And one of the things I now know is that many professionals are far, far too sanguine about losing other people’s money. To many of them, running money is a shameless academic exercise. The aforementioned “professional” who was managing our money believed big-time in EMH (what an utter crock) and he absolutely believed in such nonsense as “You must have exposure to foreign markets!” - which in his book included things like France, and TOT and Vivendi. After he held onto Vivendi for a 75% loss and I had my own sources telling me of fraud within the company in late 2002 (which he refused to believe), I finally pulled our money out from him, made some calls and got him kicked off our broker’s list of client advisors as well. My parting shot to him about his macro theories (EMH) and failure to contain losses was “I need to be invested in a French water company-turned media conglomerate like I need a dose of the clap.”

Oh, and as for my sources on Vivendi? Yea, they turned out to be correct:

http://online.wsj.com/article/SB10001424052748704071304576160864164657034.html

It took years to be vindicated on that one, but when the charges were finally brought, I knew I was right to run our own money and never let an advisor tell me how or what to do ever again.

It was after this experience that I learned an expensive and painful lesson about many financial “professionals:” They’re in love with their theories of how the markets, business, economics and the world work, and they’ll stick to their theories, even when the abundance of evidence of the market is turning against them. That they have the unmitigated gall to charge 2% while not making any money is my best evidence that they’re frauds and hucksters. IMO, a financial advisor should charge only when he makes someone money. Any idiot or fool can lose money. It’s easy. That sort of expertise is abundant and cheap. I could give money to any crack addict on a street corner and he’ll very successfully lose that money without charging me any additional fees for doing so. This goes to my argument for penalizing the i-banks for their idiocy too - and their wailing and crying that if they don’t comp their staff with absurd riches, they’ll “lose their talent.” Uh, ‘scuse me, but a bunch of clowns that cause what happened from ‘07 to ‘09 aren’t “talent” unless crack addicts are “talent” too.

The problem for investors is that they cannot tell whether their advisor is in love with his own theories or not until the crap starts to hit the fan. That’s when the real professionals differentiate themselves from the grifters - and by then, it is too late for the victim.

In the last 10 years, I’ve learned that none of these market prognosticators or fund managers spouting crap mean anything. There’s only price and volume, profit or loss. If a security starts going down, I don’t care why. If I have gains, I’m taking them, and if I don’t, I’m cutting my losses. Theories be damned. Theories don’t pay the bills, profits do. I’m now a member of the School of What is Working This Month.

Hey Dave...I'm multitasking tonite... reading your post, and switching between Red Sox/Yankees and FOX Business on the US downgrade

One point about your negativism towards buy and hold..you have to distinguish if you'e talking about qualified money or not..because of the tax consequences..

When you put equities into a qualified plan, you're essentially turning a tax preferenced item...long term capital gains..into ordinary income..

Also, my business was in NY..so during the 80-90%..between federal, state, and city taxes..most were in a 50% tax bracket..

So a client who bought 1,000 shares of XYZ at $10, and happily saw it go to $20 after one year..well, if he has a change of of heart, or is in love with anothe stock, it's cost him about $4,000 to "lock in" his profit..or to put it another way..if he sells to protect his gain, the stock would have to decline by 40% for him to be "even"

The majority of my clients, when they retire, moved, or will move to states like Florida, my new home, without any state or local income tax..

Tax planning....much of it is just good common sense..but it can often have a far bigger impact that investmetn advice.. on total return..

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