Get ready – because the best of times are over and the worst of times may have just begun.
That is the assessment of a Florida mathematician who has studied the biblical Shemitah cycle as it applies to the financial markets.
Thomas Pound is an educator and mathematician who applies his statistical wizardry to the markets.
The Dow fell another 468 points, or 3 percent, Tuesday, providing fresh evidence for investors the sell-off which began in August was no mirage. It is likely to continue in September.
Only eight more trading days remain until the dreaded Elul 29, which is the final day of the Shemitah year, known as “wipe out day” on the Hebrew calendar.
Since Elul 29 falls on a Sunday, Sept. 13, when the markets are closed, the rest of this week and the following week could bring the most devastating losses. Another theory is that the period of Sept. 14-28 right after Elul 29 and leading up to a scheduled blood moon (on Sept. 27-28) could be worth watching.
Proof in the numbers
Several years ago, Pound corresponded with a financial adviser who was using a decennial analysis to determine which years were optimum for investor returns. According to the theory behind decennial analysis, which was first proposed in the book “Irrational Exuberance” by Yale Economics professor Robert Shiller, years ending in the number eight yielded better returns than other years, according to the Israeli publication Breaking Israel News. Years that ending in seven were less lucrative.
Armed with 144 years of market data going back to 1871, Pound set out to test the validity of this theory. As Pound explained to Breaking Israel News, “Being a statistician, if somebody makes a claim, then statistically, it should hold up.”
Using the Analysis of Variance significance (ANOVA) test, Pound discovered there was some basis for the financial adviser’s strategy of avoiding investing in years that ended in seven. It gave him a statistical advantage of 100 base points, with years not ending in seven averaging an annual return of 10.19 percent, compared to an overall average of 9.04 percent.
Now comes Jonathan Cahn’s New York Times-best selling book about the Shemitah cycle – “The Mystery of the Shemitah” – and Pound was again challenged to study Cahn’s research from a statistical perspective to see if it had merit.
The Shemitah year falls every seventh year, when God instructed Moses to let the land rest, cease sowing and reaping, and then all Israelites were to have their debts canceled on the final day of the year, Elul 29.
Cahn pointed out that the years 1973, 1980, 1987, 2001 and 2008 were all Shemitah years that saw stock markets collapse.
The biggest ever single-day stock market crash occurred on Sept. 29, 2008, when the Dow fell 777.7 points and lost $1.2 trillion in value. This day also happened to be Elul 29, the last day of the Jewish year, one day before Rosh Hashana, signaling the end of the Shemitah cycle.
After a friend told him about the seven-year Sabbatical cycle to the stock market, Pound again set out to see if the theory held up under statistical scrutiny.
Applying the same ANOVA test to the Shemitah cycle, Pound’s research revealed that the sabbatical years were the only group of years in which the market cycle averages consistent significant losses since 1871.
He also found that, in Shemitah years, the difference in loss was greater than that noted in professor Shiller’s decennial cycle.
“Statistically, it appears that the calendar years in which the Sabbatical year ends are worse than the other six years, and that difference is significant based on the data I have,” Pound told Breaking Israel News.
Prepare for a crash
With mathematical precision, Pound quoted King Solomon in Ecclesiastes 11:2, “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth,” as practical advice to prepare for the inevitable Shemitah market crash, Breaking Israel News reported.
The Israeli newspaper noted that “this bit of biblical wisdom advises we diversify our portfolios.”
Pound also noted the irony that, according to the decennial theory, 2015 should be one of the better years for investing in the stock market. But not so, according to the Shemitah theory. As Pound told Breaking Israel News, “In September, we can expect something really bad.”
Some who have studied and scrutinized Cahn’s research in America are even more dramatic in their advice to investors.
Michael Snyder, author of the blog Economic Collapse, wrote in an Aug. 31 entry:
“All of the intel that I have received is absolutely screaming that big trouble is ahead. So enjoy these last few days of relative peace and quiet. I mean that sincerely. In fact, that is exactly what I have been doing – over the past week I have not been posting many articles because I was spending time with family, friends and preparing for the national call to prayer on September 18th and 19th. But now as we enter the chaotic month of September 2015 I have a feeling that there is going to be plenty for me to write about.”
Snyder pointed out that Augusts are typically not bad months for the stock market. But when bad Augusts do occur, they are almost always followed by a September that is just as bad.
“Throughout history, there have only been 11 times when the S&P 500 has declined by more than 5 percent during the month of August,” Snyder wrote. “When that has happened, the stock market has almost always fallen in September as well.”
The stock market has already plummeted 14 percent over the last month.
John Hussman, author of Hussman’s weekly financial letter, wrote in an Aug. 30 entry that he sees the Dow falling by 50 percent by the time the dust settles.
Hussman urged his readers not to listen to the so-called experts brought in by networks such as CNN, CNBC and Bloomberg to calm investors’ jittery nerves. He wrote:
“They assured their few thousand remaining viewers the 11% plunge in the stock market was caused by China and the communist government’s direct intervention in their stock market, arrest of a brokerage CEO, and threat to prosecute sellers surely cured what ails their market. The Fed and their Plunge Protection Team co-conspirators reversed the free fall, manipulating derivatives and creating a short seller covering rally back to previous week levels. The moneyed interests are desperate to retain the appearance of normality and stability, as their debt saturated system teeters on the verge of collapse.”
Hussman, in fact, sees a down market for the next 18 months as it gradually falls in line with the down economy of Barack Obama.
“John Hussman’s weekly letter provides sound advice for anyone looking to avoid a 50% loss in the next 18 months. The market has been overvalued for the last three years and now sits at overvaluation levels on par with 1929 and 2000. The difference is that fear has been overtaking greed in the psyches of traders. The average Joe isn’t in the market. Only the Ivy League MBA High frequency trading computer gurus are playing in this rigged market. The 1,100 point crash last Monday is what happens when arrogant young traders, fear and computer algorithms combine in a perfect storm of mindless selling. Suddenly the pompous risk takers became frightened risk averse lemmings.”