THE GREATEST BUYING MANIA EVER,
THE 1720 SOUTH-SEA SECURITIES BUBBLE COLLAPSE
Robt. Prechtor's famous 'Bubble Chart'
September 15, 2008
THE GREAT CRASH OF 2007 - 08
In both September 2006 and January 2007, I called for a monstrous collapse in Real Estate. Not just the reverse action of the puffed-up Subprime Mortgage Bubble induced by extremely low interest rates from banks and mortgage brokers (2001 forward), but in the mass-market, middle-class region as well. Why? Because in my time frame, there has always been such an economy-wide repudiation of debt in past real estate cycles, affecting both commercial and residential individuals which reverberated through all the additional toys that the middle class desired.
Today, it is such things as water jet-ski machines, 32' ft. pleasure craft, large screen high definition T.V.s, portable laptop computers as well as high-powered desktop computers, etc. Back in the 1950s, it was a washer-dryer for the stay-at-home mother, an actual tool chest for the do-er, fixer-upper man, a second car and a silver serving set for the dining room for those family holiday get-togethers. Times change! Desires don't! And as the incremental desires increase in price and complexity, so do the actual homes as well as debt load. Suburban homes in the fastest growing city in America - Phoenix, Arizona, also are up-scaled to 4,000-5,000' ft. interior space as lifestyles change. It costs tremendously more to heat and cool such houses in the desert, but that's what the modern day family unit desires. Garages in Phoenix subdivisions are scaled for six cars - 40 % of the entire inside space construction. One for the "head of the family's status symbol" - an upscale luxury 4-door foreign car; the second in command of the family's transport - a van with 3-seats, the S.U.V. for those off-road excursions, the jet ski and trailor, the trailor for those 2-4 week getaways, and another space for that extra car-rebuilding project or sports car someone always wanted. The outside is usually designed as well-graded sand, as green lawns in a desert climate are very time-consuming and near impossible to maintain.
Going back into history, as I've done in thousands of articles and books read (see the NavBar at the end of the first page), I found that there were patterns of time parallels that kept apparing. In the case of Debt and Real Estate, they fell into certain years. They were called "Depressions," "Recessions," "Panics," "Crashes" and other complimentary names for man's folly and inability to be prudent and intelligent with his capital.
In the "7th-Year Decade Cycle," I found the following parallels:
2007-08 - Debt Repudiation Bubble - The reaction phase of too easy mortgages, supporting a massive building boom of poor quality housing mainly in the Sun-Belt region.
1997 - The "Asian & Latin American Contagion/Meltdown" - currencies, stockmarkets and real estate collapse.
1987 - The Stockmarket Panic/Crash - worldwide, vicious and extreme emotions to the October Panic lows.
1957 - Recession & Stockmarket Bear Market -
1937 - Stockmarket Bear Market -
1927 - (1926) Real Estate Bubble in Florida & California Collapse - attributed to the 1926 hurricane in Florida, no one can explain why both these bubble locations implode totally.
1907 - Wall Street Panic - Created by J.P. Morgan to eliminate his other bank competition - the Knickerbocker Bank, and the Copper Trust as well.
1897 - Silver Depression Climax - after 3/4-years of banks pulling in money and calling loans, finally Silver is modified re the defining of the U.S. Dollar.
1877 - Panic of 1877 - (Mostly Railroad Employees and Goods) - severe emotional hate ensues after all wages are halved by the robber barons.
1857 - Panic of 1857 - Overspeculation by everyone created a typical boom-bust stock bubble.
1837 - Panic of 1837 - Nathan Rothschild pulls his 'Paper' out of the U.S. in retribution for failing to recharter the Second Bank of the U.S., thus creating a 10-20 year long Depression. It was only by the grace of god and several gold miners in California that this all ended. Gold flooded into the country, thus negating the Paper wealth that had been taken out by the International Jewish Bankers Cabal.
1817 - Panic of 1819-21 - Second Bank of the United States's created a collapse of money and credit by its president Nicholas Biddle, agent for Nathan Rothschild of London.
1777 - Hyperinflationary Panic of the U.S.'s first Continental Dollar - Crisis is reached in 1780 within one year of the end of hostilities with the British forces.
I could go back further but few traders are curious enough to know that England, Germany, France, etc. had exactly the same basic pattern of crises and panics along the same timelines.
IN FRANCE, IT WAS CALLED THE MISSISSIPPI BUBBLE AFTER
THE NEW LANDS PLEDGED BEHIND THE SECURITIES ISSUED
BY THE FRENCH GOVERNMENT
Created by John Law, a Scottish mathematician, gambler, teacher, etc. Forced to leave his native land because of a duel fought over a woman, he managed to get the ear of the King of France who, as chance may have had it, had spent the government's entire treasury many times over. Desperate for cash, he decided to try Law's recomendation of issuing land-backed securities to the public. Because of the times, an affluent trading class of shipowners beginning to profit on the new world's commodities, initial interest in buying shares drove the price of the securities up immediately. From 1712 to 1720, it was a continual bull market (uptrending).
IN AMERICA, WE HAVE ALWAYS JOINED WITH OUR
EUROPEAN HERITAGE IN HAVING INFLATIONARY BUBBLES
AND DEEP, DEBT REPUDIATION-TYPE CRISES.
Most known in the Western world are the works of Nikoli Kondratieff, Russian economist who devised the five-year plan for the newly formed Soviet Socialist economy of the former Russia. His estimates of wholesale prices and interest rates making grand cycles of from 48 to 60 years in length is correct, utilizing data back to the early 1800s.Unfortunately, his knowledge comes from a mentality of measuring data, and not from a liberal education or self-taught analysis. This editor/author has taken the "Long Wave" cycle back to its source for mankind's REVERSAL OF ENERGY over his thinking in a crowd or mass psychology basis. This discovery comes from a personal analysis, and then cycles aplied to markets in short time periods, then longer and very long. My discovery was that, at the reverse of energy time/point, there is always a financial period of extreme energy causing people to behave like idiots.
In recent textbooks, these financial crises are explained in materialistic or socialistic concepts, with no real understanding of the 'Crowd' as I call the masses. Any chart of interest rates also confirms this pattern of behavior in yields of long-term bonds. The period of 1973-74 and 1980-81 was one of extremely high prices as well as comodity prices. Fortunes were made and lost, depending on how much study and prior homework was learned in advance of the events. Prior major periods of high interest rates (money panics) and "inflationary times" (bubbles) stick out when reviewing past price- or historical charts. The year 1920 is far enough back so that few today have any memory of the hurt and suffering, the massive bankruptcies, the collapse of 5,200+ banks AND the price buying spike of just about every commodity in America. It was pandemic, or across all lines of economics in the country. It collapsed the Bubble of both physicals' prices as well as land values in the farm belt. People who were paper millionaires in the country or rural areas, became bankrupt in one year's time. For the next ten years, the Federal Reserve Bank system targeted the mid- to large size cities with easy money and credit AFTER they had pulled it away from the farming economy structure and rural banks. To stay alive, all rural banks HAD to join the F.R.B. system or fail. Thus began the socialization of America, control by a foreign cabal of money lords.
A similar money squeeze occurred in 1929-32 when the real estate buble and stock mania collapsed, again dictated by the cost of money - high interest rates, but quickly collapsed due to the popping of the large cities' wealthy middle class and rich elite. Carrying forward the 1920 Panic high (usually in May) to the 1974 high (December) of interest rates and commodity prices, we get 54.6 years. Through much more intensive analysis, I have found that it is 54.90-yrs in length, with a minor adjustment of a secondary reverse cycle factor, to 54.1375-yrs. to be exact. Carrying backwards this timeline of 54.14 yrs. on May 1920 (1920.4), we get the Panic years of 1920, 1866.26, 1812.12,1757.98,1703.84 and 1649.70. Actual dates of the Crisis peak or climax of human exciteability are: May, 1964, 1812 and 1758. Of course everyone realizes that December 1974 and September 1981 (L.T. interest rates) and Jan./March 1980 (commodities and S.T. interest rates) are well recorded in our contemporary books and articles. You may have even known someone who made their fortunes or lost same in these recent dynamic event periods.
The reciprical holds true as well. Periods of extremely low commodity prices and low interest rates are centered exactly on 27.45-years from the single point tops or peaks, +/- 6 months' time. And again, adjusted for that minor reverse cycle factor, the exact timeline is 27.07-yrs. in length. Adding 27.07 yrs to 1920.4, we get 1948.10 or January 1948. For those who don't know anyone at the Chicago Board of Trade who was alive back then, the dynamic bull grain market of 1946-47 was culminated in late January 1948. Prices collapsed sharply causing much hurt to the long. Blamed on the newly produced or harvested crop of soybeans from Brazil in the Southern hemisphere, it was "seen" by hindsight, and explained away by the average traders. But it was really due to negative energies hitting the crowd psyche, killing all the optimism in all grains.
1847 - DR. HYDE CLARKE
Back in a panic time, 1847, a doctor wrote an article in the "Railway Register" magazine entitles, "Physical Economy - A Preliminary Inquiry into the Physical Laws Governing the Periods of Famines and Panics." Noting a fairly constant pattern of crises in America and England, he listed out the then obvious economic disruption in people's lives by the collapse of overextended companies and individuals. 1947 was bad, especially for the current boom in railways on the London Stock Exchange. A 'bubble' would be more correct as the first working railway was built around 1830, and by 1847, there were over 1,300 railway corporations' stock traded. Following is a quick list of what he knew by historical records.
The 'Panic of 1837' was devastating to the American economy, wiping out tremendous loads of debt during the following five years. A 'Crisis' of vast proportions was created in 1842 with corporate-, individual-, federal and state debt levels reduced sharply. Willingness to loan money for anything but the most secured, economic reason became the rule for years afterwards.
In 1827 (1826 actually), England experienced severe curtailment of growth in a period of optimism and euphoria for ten years time following the European Wars of Napoleon with numerous other nations.
1817 was a post-war period mainly for Europe as countries shifted priorities back to peacetime from over 25+ years of continual warfare throughout central Europe. As countries cut back on war spending, and shifted to letting the commercial part of the economies take back the reigns, lower activity was the rule.
1796 was the ending of the French hyperinflation by the over-issue of their Assignants currency. A printing-press, paper money bubble, supposedly culminating in the final wipeout of the middle class and the working class's savings, created devastation as great as any war of occupation. Some financial economists have even postulated that England was the antagonist, creating a secondary wave of massive printing-press money inflation, besides what the new Republic government did to themselves (1789-96), in retribution for their helping America break away from the mother country in 1776-81.
The period in U.S. history from 1783-86 was called a severe depression, mainly due to the effects of our hyperinflated Continental Dollars currency collapsing in value. For farmers, then 95 % of the population, they had a near impossibility in paying their taxes with Continental Dollar script. Continental Dollars had been so inflated as to be 99.5 % plus worthless. From 1776 to 1780, gold ran from $ 20/tr. oz. to $ 19,800.
The beginning of the Revolutionary War period was mainly due to the (U.S.) colonies being forced to pay taxes and fees in gold to the Crown (London) which they did not have. The merchants and colonial governments had to borrow such monies from London bankers to pay their assessed debts, on interest-based loans. By 1775, when hostilities began, compounded interest charged had created a debt-based shrinkage of the economies even throughout the agricultural South - the real power of the new world.
Dr. Clarke's main discvery was that there was a 10-11 year periodicity showning throughout the recent economic history for panics and crises. To my knowledge, this was one of the first empiracal studies ever done that was reported to the reading public. It also suggested a Panic in 1857 (came right on schedule), 1866-67 (by chance was the post-U.S. Civil War adjustment period and collapse in cotton prices) and 1877. A double panic of 1873 and 1877 (mainly in the U.S.) came right on schedule as well. 1888 was a minor crisis here. 1899 came after the famous 1893-96 Silver Depression low period. 1907 however was very famous as J.P. Morgan used the manipulation of foreclosures, calling in money loans and circulating cash to squeeze out some 250+ banks who were competition. 1937-38 was a sharp selloff period for stocks. 1948-49 was the last gasp of the depression mentality and economies' woes. 1957 was a sharp bear market for equities. 1968 was a major high for equities leading to a devastating two-year selloff. 1987 was another significant Panic throughout the world. 1997 hit S.E. Asia, Latin- and South America like a sledge hammer. Some real estate-, stocks and currencies are still trying to recover in those countries as of late 2005.
Image credit: BizMailKing
Below is the famous woodcut of what a "Panic" looks like on an exchange floor. In this case, it was the private gentlemen's club called the New York Stock Exchange.When a majority of a group are wrong, and they don't realize it until the dollar amounts begin adding up, the need too exit and reverse position becomes extremely emotional. As a result, the emotions of a mob bring out the lower self-preservation type, animalistic behavior which is selfish and greed at iis highest.