Wednesday, January 2, 2013

2012.12.31 Cycle Charts

Here are the cycle charts for the end of the year 2012.  I will post quarterly updates since more frequent updates are not required given the models' turning point errors which are somewhere in the 6-12 month  given that higher frequency cycles with a period < 233 days have been eliminated.  I cannot explain why the Amex Oil Index model is predicted to rise well into 2014 while the DJIA, gold and silver all look like they are responding to deflationary pressures all through the year.

The American economy continues to consume more than it produces as outlined by the ever-increasing current account deficit. This reflects deep underlying structural issues that will not be palliated by the so-called "fiscal cliff compromise."  I continue to believe that while the Fed has stretched the 81 +/- year cycle that defines the baseline through the current topping process as reflected in the equity markets, it has not abolished that cycle. If I am to believe the cycle models, then 2013 should be the year where the markets realize their predicament and act accordingly.

I'll take this opportunity to wish everyone a happy, healthy and successful year!


Brigadoon said...

Paolo, thank you for posting these charts. You work is truly fascinating. I wonder if future Middle East conflict could explain the disparity between your XOI and equity market models.

Paolo said...

Thanks Brigadoon, the thought crossed my mind. There are some weather cycles that are associated with resource wars, but they tend to very long periods which should not be captured by the analysis. With respect to the XOI, we are moving into the 30-year cool part of the Pacific Decadal Oscillation, which has a period of 60 years. I would expect more energy use if this was the case. In addition, we seem to be on the cusp of a very weak Solar cycle 24, which may or may not result in lack of solar cycles for the next X years. If this is the case, I would expect energy use to increase much more than now expected. Of course, this is all amusing, but it still does not provide a reasonable explanation for how well, or not, the XOI cyle model is performing, nor an answer to your question! Embrace the mystery!

Jamison McAuley said...

War between China and Japan could explain these forecasts. This is much more likely than War in the Middle east.

Paolo said...

Jamison, I agree with you on a sociopolitical basis, but I don't think the model would pick up on a "war cycle" since the time series is probably not long enough to capture that cycle information, if it indeed exists. As far as XOI.X - well, it does look like we may be moving into a "solar minimum" which would result in a much colder climate. Again, this might be fortuitous, since while there is clearly evidence of an 11.8 year and 22.1 year set of cycles in the XOI.X model, consistent with solar cycles, the model again does not reach back enough to capture any strongly changing climate cycle of more than a few decades.