THE 9/56 YEAR PANIC CYCLE

9/56 YEAR CYCLE: FINANCIAL CRISES

Most economic theories regard business cycles as occurring in variable waves of progressive expansion and contraction ad infinitum. Many analysts are skeptical about using such cycles in their investment decisions, due to their poor predictability. However, financial crises, which are the most dramatic phase of the business cycle, tend to occur every 56 years in sequences. These sequences in turn are interconnected by sub-cycles based on multiples of 9 years to produce a 9/56 year grid pattern. The financial crises typically involve a period of over optimism, greed and rampant speculation, followed by crisis, fear and economic slump. Each crisis is unique and cannot be compared with other crises in a particular sequence.

Cycle theorists assume a fairly regular repetition of crises every so many years. The concept of numerous sub-cycles lasting for several decades and operating simultaneously is alien to cycle paradigms. Even the 56 year sequences, which may persist for centuries, should fade out over very long time frames. Important crisis events may also skip a beat in a particular sequence, only to reappear 112 years later and the whole cycle must change progressively never repeating itself exactly.

THE PRINCIPAL 56 YEAR SEQUENCES

Funk (1932) was the first to propose three 56 year sequences for the US economy. For convenience, all sequences in this cycle were numbered from 01 to 56 with (1761, 1817, 1873, 1929, 1985) being designated Sequence 01. Hence, Funk's three sequences was denoted as 01, 21 and 41 (see subsequently). The sequence year is taken as commencing on March 1, as this seems to be the year of best fit. No definition exists of what constituted a 'major' crisis in economic history. Thus Appendix 1 gives a list by Kindleberger (Appendix B, 1996) of what he considered were 'major' financial crises. This source was chosen given his pre-eminence as an historical economist and because he presented the most comprehensive listing of major crises over recent centuries. The list provided an external reference independent of this cycle study. Years in which these major crises occurred have been given in BOLD throughout the text. The 56 year sequences are presented as follows.

SEQUENCE 01
1761	US downturn. Ending of the French & Indian War. (Also English crisis - June - December).
1817	US recession. Resumption of specie payments in February. ? Listed as an 1817-1818 US crisis by Adams (1936). (Also French crisis).
1873	US Black Friday (September 19). Jay Cooke & Co failure. (Also Austrian Black Friday (May 9). Vienna leasing crisis).
1929	US Black Tuesday (October 29). After New Era Prosperity.
1985	US$ crisis (September). G 5 meeting. Plaza Accord.

SEQUENCE 21
1781	US deflation. Ending of Revolutionary War.
1837	US panic (May). Cotton panic. After Bank Credit Land Boom. (Also English crisis - December 1836).
1893	US panic (May - July). National Cordage Co failure. US Black Wednesday (July 26).
1949	US recession.
2005	No Crisis

SEQUENCE 41
1801	US depression. After Carrying Trade Prosperity.
1857	US panic (August 24). Ohio Life Insurance & Trust Co failure. US banking panic (October 14). (Also English crisis - October; Continental crises - November).
1913	1913-14 US & European crises. Second Balkans War. Beginning of WW 1.
1969	US recession.

Astonishingly in the 100 years to 1930, Funk’s three sequences contained 6 years, in which occurred five of the worst panics in US history (1837, 1857, 1873, 1893 & 1929 - the exception was the crisis of 1913). Given this highly accurate trend, additional 56 year sequences were postulated to exist in recent centuries. References on US and Western European economic history were gleaned for such patterns with the ensuing sequences being regarded as the most significant.

SEQUENCE 03
1763	Amsterdam panic (September). Ending of the Seven Years' War.
1819	US crises (November 1818 - June 1819). English crisis.
1875	British crisis. (Kitchin, 1933). Collie failure.
1931	Austrian crisis (May 11). Creditanstalt failure. German crisis (June - July). Danatbank troubles. British crisis (September 21). Off gold standard.
1987	US Black Monday (October 19). Worldwide stock market panics.

SEQUENCE 05
1765	US crisis. Stamp Act passed.
1821	No crisis
1877	1877-78 US 'sharp decline' (Sobel, 1965). Banking fears. Great rail strike.
1933	US banking crisis (March 6/9).
1989	Japanese 'bubble economy' deflates (January 1990). US Friday 13 near panic (October 13). German panic (October 16). US junk bond collapse. Drexel, Burnham & Lambert failure (February 1990).

SEQUENCE 12
1772	English panic (June 22). Ayr Bank collapse. Amsterdam panic (January 1773).
1828	French crisis (December 1827). Bankruptcies in Alsace.
1884	US panic (May 13/16). Railway speculations.
1940	US near panic (May). French capitulation.
1996	No crisis

SEQUENCE 32
1792	English panic (February 1793). After canal mania. US panic (March 22/23) (Sobel, 1968).
1848	French panic (March). Year of Revolutions.
1904	French panic (February 20). 1903 US rich man's panic (March).
1960	No crisis.

SEQUENCE 48
1808	1807-08 US Embargo Depression.
1864	French panic (January). After cotton speculation. US panic (April 16/17) (Sobel, 1968). Civil War.
1920	USA & UK crises. After inflation.
1976	No crisis.

SEQUENCE 50
1810	English Great Panic (January 1811).
1866	English Black Friday (May 11). Overend Gurney failure. Italian crisis (May 1). Lira convertibility into gold suspended.
1922	German crisis (January 1923). Default on reparations.
1978	No crisis.

SEQUENCE 52
1812	No crisis.
1868	French crisis (November 1867). Failure of Credit Mobilier (Pereire Brothers)
1924	French franc crisis (March) (Kindleberger, 1978).
1980	1979-80. US crises. Farmland (1979), US$ (1979), Oil (1980). After silver mania (Silver Thursday - March 27).

Within the 56 year sequences, crises often take place in approximately the same month of the year. The crisis month is given wherever possible in the text.

Seq 01 - 1873 (USA - September), 1929 (USA - October), 1985 (US$ - September).

Seq 03 - 1763 (Continent - September), 1931 (UK - September), 1987 (World - October).
Also 1819 (USA - April/May), 1931 (Austria/Germany - May/June).

Seq 05 - No trend.

Seq 09 - 1713 (England - Jan - April 1714), 1769 (France - February 1770), 1825 (England -
December), 1881 (France - January 1882). 1993 (USA - February 1994)

Seq 12 - 1716 (England - Jan - March 1717), 1772 (Amsterdam - January 1773).
Also 1772 (England - June), 1884 (USA - May), 1940 (USA - May).

Seq 21 - 1837 (USA - May), 1893 (USA - May).

Seq 32 - 1792 (USA - March), 1848 (France - March), 1904 (France - February).

Seq 41 - 1745 (England - Dec 5), 1857 (England - Oct; Continent - Nov).

Seq 48 - Insufficient data.

Seq 50 - 1810 (England - December 1811), 1922 (Germany - January 1923).
Seq 52 - 1924 (France - March), 1980 (USA - March).

For some sequences, available data was insufficient to indicate possible trends.

SUB-CYCLES IN MULTIPLES OF 9 YEARS

36 Year Sub-Cycles. The 10 principal sequences may be linked in 36 ysc Series 1 & 2 based on multiples of 9 years (9, 18, 36, 54 years) (see Table 1). These sub-cycles operate for comparatively short periods, where as the 56 year sequences may persist for several centuries. Between 1760 and 1940, 34 years appeared in the 36 ysc Series 1 & 2, of which 15 were major financial crisis years according to Kindleberger (1996). (This figure does not include the crises of 1828 and 1864 that occurred early - ie: pre March.) Using a chi-squared test, the probability was assessed at p < 10^-4 and thus very unlikely to occur by chance. For the period 1940 to 1990, a number of currency crises were included in Kindleberger’s listing of crisis years from 1958 onwards, none of which appeared within the 36 year sub-cycles. Even including these currency speculations, 17 of Kindleberger’s 42 crisis years (1760-1987) fell in the 36 year sub-cycles, which gave p < .001 and was thus still significant.

Table 1 36 YSC & MAJOR FINANCIAL CRISES - 1760 - 2010
36 YSC Series 1
Sq 05		Sq 41		Sq 03		Sq 21		Sq 01
								1761
				1763	+ 18	1781	+ 36	1817
1765	+ 36	1801	+ 18	1819	+ 18	1837	+ 36	1873
1821	+ 36	1857	+ 18	1875	+ 18	1893	+ 36	1929
1877	+ 36	1913	+ 18	1931	+ 18	1949	+ 36	1985
1933	+ 36	1969	+ 18	1987	+ 18	2005
1989

36 YSC Series 2
Sq 52		Sq 32		Sq 50		Sq 12		Sq 48
						1772	+ 36	1808
		1792	+ 18	1810	+ 18	1828	+ 36	1864
1812	+ 36	1848	+ 18	1866	+ 18	1884	+ 36	1920
1868	+ 36	1904	+ 18	1922	+ 18	1940	+ 36	1976
1924	+ 36	1960	+ 18	1978	+ 18	1996
1980
Years in bold contained major financial crises as listed by Kindleberger (Appendix B, 1996) in the year commencing March 1.

Most importantly, Kindleberger's major crises in the 36 ysc Series 1 occurred in the 7 months between May and November, with an emphasis on May and September/October. There were only two exceptions:

1819      US crisis (Given as a range by Kindleberger (1996) November 1818 - June 1819).
               Calomiris & Gorton (1991) gave April/ May 1819 as the ‘height of panic’.
1933      US banking crisis (March).

In Series 2, all the major crises took place in March - June and January - February of the following year.

Financial crises in other listings also fall with significance in patterns of the 36 ysc Series 1 & 2:

* 39 US & Wn European major/minor crises (1796-1937). Kitchin (1933) (14 - p < .01).

* 31 US & Wn European crises (1763-1933). Adams (1936) (14 - p < .001).

Such findings further support a 9/56 year panic cycle.

During 1760-1940, 15 major crises occurred in the 12 months beginning March 1 of the years in the 36 ysc Series 1 & 2, a figure which represented half the 30 crises listed by Kindleberger (1996).

For the 1940-87 period, only the 1980 and 1987 crises fell in the 36 year sub-cycles. Many other crises listed by Kindleberger (1996) did not appear in these sub-cycles:

* Currency crises - 1958, 1962, 1963, 1964, 1968, 1973, 1978-79.

* Major financial crises - 1974-75, 1982.

The main discrepancy occurs with the currency crises of the post war era. How well distress in currency markets correlates with the 56 year sequences is debatable and much more work is required for a meaningful assessment. Additional research may show that major financial crises align more readily with the 9/56 year cycle than do international currency crises.

The 36 year sub-cycles Series 1 & 2 are displaced relative to each other by an factor of 9 years (ie: Series 2 plus 9 years gives Series 1). Table 2 gives the combined Series 1 & 2.

Table 2 COMBINED 36 YSC SERIES 1 & 2 - 1760 - 2010
Sq 52	Sq 05			Sq 32	Sq 41	Sq 50	Sq 03	Sq 12	Sq 21			Sq 48	Sq 01
													1761
							1763	1772	1781	1790	1799	1808	1817
	1765	1774	1783	1792	1801	1810	1819	1828	1837	1846	1855	1864	1873
1812	1821	1830	1839	1848	1857	1866	1875	1884	1893	1902	1911	1920	1929
1868	1877	1886	1895	1904	1913	1922	1931	1940	1949	1958	1967	1976	1985
1924	1933	1942	1951	1960	1969	1978	1987	1996	2005
1980	1989	1998	2007
The 56 year sequences in the table are separated by an interval of 9 years. Years in bold contained major financial crises as listed by Kindleberger (Appendix B, 1996) in the year commencing March 1.

Apparently, the 9/56 year cycle can only be closely associated with financial distress in economic history. No repeatable correlates could be established between the 9/56 year cycle and numerous peak/trough listings examined for the S&P 500 and the Dow Jones Industrials Average. Crises tend to happen preferentially in 9/56 year grid patterns, but the same does not seem to apply to peaks and troughs in share market or economic activity.

ARTIFACT SUB-CYCLES

Numerous other patterns can be generated from the 9, 18, 36, 54 year sub-cycles and occur on the diagonals in Tables 1 & 2. Because they are derived from the 9/56 year cycle, they have been described as ‘artifact’ sub-cycles. The following only discusses the 20 year sub-cycles, which are the most obvious sub-cycles in economic history and were first presented by Funk (1932). The many other artifact cycles are covered by McMinn (2006).

20 year sub-cycles are to be found between Funk's Sequences 01, 21, 41 on the diagonals of the 36 year sub-cycles.

36 YSC Series 1

Sq 05		Sq 41		Sq 21		Sq 01
				1781	+ 36	1817
1765	+ 36	1801	+ 36	1837	+ 36	1873
1821	+ 36	1857	+ 36	1893	+ 36	1929
1877	+ 36	1913	+ 36	1949	+ 36	1985
1933	+ 36	1969
1989	+ 36	2005

Years underlined gave the most notable 20 year sub-cycle in US economic history beginning 1873:

Sq 01	1873	Austrian Black Friday (May 9) US Black Friday (Sept 19)
Sq 21	1893	US Black Wednesday (July 26)
Sq 41	1913	1913-14 US war crises
Sq 05	1933	US banking crisis (March)
	1953	US 'disturbance' (March)
	1973	US$ crisis. OPEC oil crisis
	1993	US bond market collapse (February 1994)

The 36/56 year grid may be realigned to give 20 year sub-cycles as shown:

20 YSC Series 1

Sq 01		Sq 21		Sq 41		Sq 05
1761	+ 20	1781	+ 20	1801	+ 20	1821
1817	+ 20	1837	+ 20	1857	+ 20	1877
1873	+ 20	1893	+ 20	1913	+ 20	1933
1929	+ 20	1949	+ 20	1969	+ 20	1989
1985	+ 20	2005

EARTHQUAKES

A 9/56 year effect may also be evident in earthquakes cycles, as these events can fall preferentially in these patterns for many countries in the circum Pacific and elsewhere (9/56 Year Cycle: Earthquakes & Volcanoes). Good examples of the 9/56 year seismic cycle are given for California, Hawaii & Alaska.

Sequence 52 was the most important 56 year sequence in seismic history. All events happened in the 9 months ending May 31.

Sequence 52	Location	Mag	Comment
Jan 26, 1700	Great Cascadia quake	9.0	Record western US quake
Nov 01, 1755 Nov 18, 1755	Great Lisbon quake Boston quake	9.0 6.3	Record European quake Record north east US quake
Feb 07, 1812	New Madrid quake	7.9	Record central US quake
Apr 03, 1868	Hawaii	7.9	Record Hawaiian quake
Sep 01, 1923	Tokyo	7.9	Most damaging Japanese quake
May 18, 1980	Mt St Helens eruption	na	Record historic volcanic eruption in the lower 48 US states.

CONCLUSIONS

What can be stated with a high degree of confidence is that major US and Western European financial crises happen preferentially in 9/56 year patterns. The 9/56 year cycle is precise with the crisis month occurring within the crisis year (ie: March of the sequence year through to the following February) and often around the same month of the year within a given sequence. The 9/56 year cycle is extremely complex as numerous integral numbers (based on the solar year) may be given significance. There are the 56 year sequences, the 9 year sub-cycles (9, 18, 36, 54 years) and many artifact sub-cycles (eg: 20 years). The sub-cycles: 1) are only relevant for a certain period in financial activity and then fade out. 2) function simultaneously helping to account for the complexity in market patterns. Even so, the most relevant sub-cycles are those in multiples of 9 and 56 years, which may be linked intimately with Sun - Moon cycles.

The obvious question arises as to the mechanism precipitating this very enduring cycle of financial distress. After much research the 9/56 year cycle was found to correlate very closely with cycles of the Sun and Moon, a finding covered by McMinn (2000). Greater understanding of the relationships between lunisolar cycles and the timing of financial crises offers the potential for making accurate financial forecasts years in advance. At present such forecasts are very dependent upon numerological analysis and extrapolations from historical precedent. Both these approaches are primitive and leave a lot to be desired in their predictability. Improvements will only come about through much needed follow up research.

Copyright © 1986-2002. David McMinn. All rights reserved.

This paper was summarised from the book MARKET TIMING By The Number 56. The published by Twin Palms Publishing, BLUE KNOB. NSW 2480. Australia.

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REFERENCES

Adams, A B. Analyses of Business Cycles. McGraw - Hill. 1936.
Calomiris, C W & Gorton, Gary. The Origin of Banking Panics. Paper in Financial Markets & Financial Crises. Edited by Hubbard, R G. The University of Chicago Press. 1991.
Funk, J M. The 56 Year Cycle in American Business Activity. Privately published. 1932.
Glasner, David (ed). Business Cycles & Depressions: An Encyclopedia. Garland Publishing Inc. 1997.
Kindleberger, C P. Manias, Panics & Crashes. John Wiley & Sons. First published 1978. Updated 1989. Revised 1996.
Kitchin, J M. Trade Cycles Chart. Published by The Times Annual Financial & Commercial Review. 1920, 1924, 1930. Revised chart to 1933 presented in Gold. A reprint of The Special Number of The Times. June 20, 1933. Times Publishing Co Ltd. 1933.
McMinn, David. The 56 Year Cycles & Financial Crises. 15th Conference of Economists. The Economic Society of Australia. 25-29 August, 1986.
McMinn, David. Market Timing By The Number 56. Twin Palms Publishing. 2002
Mishkin, F S. Asymmetric Information & Financial Crises: A Historical Perspective. Presented in Financial Markets & Financial Crises. Edited by Hubbard, R G. The University of Chicago Press. 1991.
Sobel, Robert. The Big Board: A History of The New York Stock Market. Free Press. 1965.
Sobel, Robert. Panic on Wall Street: A History of America’s Financial Disasters. Macmillan. 1968.

APPENDIX 1 MAJOR US & WN EUROPEAN FINANCIAL CRISES POST 1760 - KINDLEBERGER (Appendix B 1996).
1763	Amsterdam. SP - January 1763. C - September 1763. End of Seven Years' War.
1772	England & Amsterdam. SP - June 1772. C - January 1773.
1793	England. SP - November 1792. C - February 1793. After canal mania.
1797	England. SP - 1796. C - February-June 1797.
1799	Hamburg. SP - 1799. C - August-November 1799.
1810	England. SP - 1809. C - January 1811. Great Panic.
1815-16	England. SP - 1815. C - 1816.
1819	USA. SP - August 1818. C - November 1818-June 1819.
1819	England. SP - December 1818. C - None.
1825	England. SP - Early 1825. C - December 1825.
1828	France. SP - MNG. C - December 1827.
1836	England. SP - April 1836. C - December 1836.
1837	USA. SP - November 1836. C - September (error - May correct ?).
1838	France. SP - November 1836. C - June 1838.
1847	England. SP - January 1847. C - October. After railway mania.
1848	France. SP - March - April 1848. C - March 1848. Year of Revolutions.
1857	USA. SP - Late 1856. C - August 1857.
	England. SP - Late 1856. SP - October 1857.
	Continent. SP - March 1857. C - November 1857.
1864	France. SP - 1863. C - January 1864.
1866	England/Italy. SP - July 1865. C - May 1866
1873	Germany/Austria. SP - Fall 1872, C - May 1873.
1873	USA. SP - March 1873. C - September 1873.
1882	France. SP - December 1881, C - January 1882. Union Generale failure.
1890	England. SP - August 1890. C - November 1890. Baring Crisis.
1893	USA. SP - December 1892. C - May 1893. Falling gold reserves.
1907	USA. SP - Early 1907. C - October 1907.
1907	France/Italy. SP - March 1906. C - August 1907.
1920-21	USA/UK. SP - Summer 1920. C - Spring 1921. After inflation.
1929	USA. SP - September. C - October 29. Black Tuesday.
1931-33	1931 Austria. C - May. Germany. C - June. UK. C - September.
1931-33	1933 USA. C - March. Banking crisis.
1950's & 1960's	Currency speculations: France 1958, Canada 1962, Italy 1963, Britain 1964, France 1968 and US$ 1973.
1974-75	Worldwide. SP - 1973. C - 1974.
1979-82	USA crises: SP - 1979. Farmland (C - 1979), US$ (C - 1979), Oil (C - 1980), Third world debt (C - 1982).
1982-87	USA crises: US$ (SP - 1985), Real Estate (SP - 1987), Stocks (SP - 1987, C - Oct 1987*).
1990	Japanese crisis. After bubble economy. SP - Dec 1989. Crisis - Jan 1990.
* Crisis given as a range 1987-92. Only the 1987 panic could be regarded as a major crisis. Excludes the Japanese crises of December 1931 (Seq 03) and January 1990 (Seq 05), as well as the Australian banking crisis of May 1893 (Seq 21). Abbreviations: SP- Speculative peak. C- Crisis/Panic. MNG- Month not given.