First, the flags:
1. China repo rate has escalated sharply today suggesting another cash crunch may be at hand:
2. Insider selling in the US is now historically high, a further sell signal for equities:
3. Comex gold stocks that are eligible for delivery versus open interest has risen to a historic extreme of 112:1. This means that the gold owners will demand higher prices to put their gold up for delivery and is bullish for gold prices.
Now to the solar findings.
Below is a chart showing the last 4 solar cycles. In the last 4 decades there have been 3 major real estate peaks in the US and UK: 1979, 1989 and 2006/7. There has been one in Japan: 1991. In the last 4 decades there have been 2 secular peaks in the CCI commodities index: 1980 and 2011 (which exceeded the 2008 high). In the same period we saw one major secular equities peak in Japan in 1989 and two major global equities peaks in 2000 and 2007. All are annotated below.
The theme of major market peaks falling at solar maxima is again revealed, but two recent anomalies stand out: the equities and real estate peak of 2007 falling at a solar minimum, rather than a solar maximum; and the commodities speculative peak of 2011 falling on the rise towards SC24 maximum.
Tackling the first, that 2007 peak gave way to the 2008 financial crisis, in which we saw crashes in real estate, equities and crude oil prices. This is in keeping with other crashes and crises that have historically occurred around solar minima. 1987’s historic crash in equities took place near a solar minimum. 1994 delivered a treasury bond market crash. 1997 saw the Asian financial crisis and a crash in equities. 2008 the aforementioned multi-asset crashes and financial crisis, and 2010 the flash crash in global stocks. All saw significant price rises into the crashes/crises. Central bank policies of this last decade were particularly friendly to asset bubbles, hence a suitably large boom and bust.
Turning to the second anomaly, one possibility is that commodities have not yet peaked and go on to make a higher high than 2011 in a late and swift cyclical charge as equities top out.
If they have already made their highs, then one explanation for their early peak on the SC24 maximum could be that China’s demographics topped out around 2010, and as the main driver of commodities demand the speculative finale had an earlier bias. China’s demographic trending to peak is perhaps better reflected in the bull market in commodities from 2000 than in their brief stock market mania around 2007.
But there is something else. Solar cycles average 11 years 1 month, but there have been outliers as short as 9 years and as long as almost 14 years. Here are the smoothed solar maxima of the last 100 years:
Aug 1917 (+11y6m after the previous solar maximum)
Apr 1928 (+10y8m)
Apr 1937 (+11y)
May 1947 (+10y1m)
Mar 1958 (+10y8m)
Nov 1968 (+10y8m)
Dec 1979 (+11y1m)
Jul 1989 (+9y7m)
Mar 2000 (+10y9m)
Dec 2013 ? (+13y9m)
Most aren’t far from average cycle lengths, but May 1947 was a year shorter, July 1989 shorter still, and if this smoothed solar maximum turns out to be around December 2013, that will be a much longer one than any of the others. Even if the smoothed maximum turns out to be Feb 2012 (the smoothed max to date) it will still be an outlier on the long side.
If lunar phasing still works despite artificial lighting and is to some degree ‘hard coded’ in human evolution, could sunspot cycles be too? Do we see evidence of human excitement through speculative peaks occurring around 11 years 1 month after the last solar maximum on those occasions where solar maxima occur significantly earlier or later?
The last smoothed solar maximum was March 2000. Add 11 years 1 month and we get April 2011, which is where we saw speculative peaks in silver, cotton, coffee, rare earths and others. However, we also see evidence of a speculative peak occurring now, at the likely smoothed solar maximum, as evidenced in many indicators and measures of equities.
July 1989 was an early outlier. 11 years 1 month from the previous peak would have been January 1991. Close to that, Japanese real estate peaked June 1991 and crude oil peaked in October 1990 in a war-associated major spike. However, we also saw US and UK real estate and Japanese equities peaking close to the actual solar maximum of July 1989.
May 1947 was an early outlier. Had it been a more regular May 1948, then we saw wholesale prices and crude oil peaking out around 1948. Yet commodities such as wheat, corn and oats peaked close to the 1947 actual smoothed maximum.
That may suggest there is some degree of hard coding of rhythm in human excitement, as well as some degree of variance in speculative peaks according to when actual solar maxima fall. However, when we look at the solar cycle progression charts, we find that the tops of the solar maxima stretched across 1989-1991 and 1947-1948, which suggests there was no anomaly: speculative peaks were in line with actual solar maxima. But this is not really the case for the 2011 speculative peaks which fell on the rise into SC24 maximum. Therefore, we need to wait to see if commodities do make a late charge to a high exceeding 2011, wait to see if the solar maximum is falling and completing now, and also to wait to see if equities top out here and deliver a peak aligned with that potential solar maximum, before we can judge this further.