The 56 year cycle mentioned yesterday (“Periods When to Make Money” (© 1883) was picked up by FT Alphaville; we hear it caused some “consternation” in certain circles where the marinating of ice cubes takes place.

I find these approaches quite fascinating, if for no other reason than I consider myself a student of market history. (Whether it is an actionable thesis is an entirely different question). For those of you who are also interested in such things, let’s explore this periodicity, better known as the Benner Cycle.

Samuel Benner was a prosperous farmer who was wiped out financially by the 1873 panic. When he try to discern the causes of fluctuations in markets, he came across a large degree of cyclicality.

Benner eventually published his findings in a book in 1875 — BENNERS PROPHECIES: FUTURE UPS AND DOWNS IN PRICEs – making business and commodity price forecasts for 1876 -1904. Many (but not all) of these forecasts were fairly accurate.

The Benner Cycle includes:

-an 11 year cycle in corn and pig prices with peaks alternating every 5 and 6 years.
-cotton prices which moved in a cycle with peaks every 11 years.
-a 27 year cycle in pig iron prices with lows every 11, 9, 7 years and peaks in the order 8, 9, 10 years.

It makes some degree of intuitive sense that a farmer would recognize longer term cycles. Their entire year is based on the annual sowing/growing/reaping cycle; The 11 year solar cycle would certainly impact their crop yields, revenue, etc. So looking at how the variants of crop yield and prices impacts the overall economy and markets makes lots of sense.

There are two caveats to all of these cyclical variants — Gann, Elliot Wave, Fibonnacci, Benner. First, consider there is insufficient data — we really need 500 years of market history to have a better data set to draw conclusions. Second, the unfortunate tendency to form fit after the fact (I see people doing this with Fibs especially). Mnay of the peaks and valleys are off by a year or two, but it looks close. Some of it might be explained by randomness.

Regardless, I think it is worth thinking about as a general long term framework — and a reminder that the so-called 100 year floods comes along much more frequently than the name implies . . .

Via Google Books

>

For those who wish to explore this further, you should check out David McMinn’s THE BENNER CYCLE, FIBONACCI NUMBERS& THE NUMBER 56.

I am not a huge Prechter fan, but I found his book Prechter’s Perspectives very intriguing — it covers the long term political-socio-economic cycles of recession, war, recovery, expansion, bubble, etc. It is intellectually stimulating, but not exactly actionable . . .

Category: Cycles, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “The 56 Year Benner Cycle”

  1. Cdale_dog says:

    Big job numbers out this morning, moving the market much lower and no jobs post Barry? Am I on the right website??? What did you think of the report? Are we going in the right direction or is high rates of unemployed here to stay? Can the government do anything about this (i.e. tax incentives, MAJOR investments into Green technology, infastructure, etc.) are are we just SOL?

  2. regalzonophone says:

    I’m surprised that there is no mention of the Kondratrieff cycle.

  3. Niskyboy says:

    Here’s a different type of cycle a farmer would know — sunshine and its effect on stock market performance: http://www.washingtonpost.com/wp-dyn/content/article/2007/12/02/AR2007120201558.html

  4. Niskyboy says:

    Well, the farmer would plan his activities according to sun and rain is all I meant to say.

  5. Petey Wheatstraw says:

    Corn, hogs, cotton and pig iron. Sounds like one of my freekin’ family reunions.

    That said, did Benner happen to write anything about the cycle regarding mules? In my opinion, the value of a good mule never changes.

  6. wally says:

    “It makes some degree of intuitive sense that a farmer would recognize longer term cycles.”

    In addition, consider his cycles of alternating corn prices and hog prices. The two items are not unrelated: cheap feed encourages farmers to raise hogs. If they overproduce, hog prices fall. There is then less demand for feed, so corn prices fall. If there is insufficient damping in the cycle, it will continue.
    There are many similar prey/predator cycles in nature.

  7. wsyrett says:

    Petey,

    I am told there is no education in the second kick of a mule. Haven’t tried it to find out.

  8. Joseph Martinez says:

    I can understand that the baby-boomers have reached their peak spending period. I can also understand that this time it is different because we (the USA) have changed from a manufacturing economy to a service economy since the baby boomers were born.

  9. TDL says:

    regalzonophone,
    Thank you, I was trying to remember his name. I know Marc Faber discussed Kondratrieff’s theory in his last book, “Tomorrow’s Gold”. Below I have a link to Amazon for additional Kondratrieff related books.

    I think there is something to cycle theories, but as BR said, there is not enough data. Since there is a lack of data, a lot of “interesting” theories are articulated which probably dissuades more rigorous thinkers & analysts from delving into the topic.

    Regards,
    TDL

    Amazon link: http://www.amazon.com/s/ref=nb_sb_ss_i_0_6?url=search-alias%3Dstripbooks&field-keywords=kondratieff&x=0&y=0&sprefix=kondra&ih=13_2_1_1_2_0_0_2_1_1.30_103&fsc=18

  10. DrungoHazewood says:

    My greatgrandfather, Gustav Geiser, and his brother Adolph Geiser, used to plant by the phases of the moon. Supposedly Gustav was a big wheel in Chadron Nebraska 100 years ago. He swore, no doubt in German, by the Farmer’s Almanac.

  11. callistenes says:

    Always glad to be a source of consternation BR. Anyway Jake has an interesting graph of returns using Tritch’s method.
    Check it out.
    http://econompicdata.blogspot.com/2010/08/161820.html

  12. Thor says:

    Are there any studies in the last hundred years that would support any sort of wave theory as a reliable predictor of anything market related?

    Has anyone who believes such claims done any research on the matter? If not, why?

  13. jpm says:

    > Are there any studies in the last hundred years that would support any sort of wave theory as a reliable predictor of anything market related?

    Yes. Simple fourier transforms and all sorts of wavelets. (It’s not that hard, many engineers check it for fun.)

    The results are mathematical noise. Same for fitting Fibonacci (more commonly called “an exponential series”, but people like using 15th century Italian to make it seem more exotic.)

  14. jpm says:

    Whoops, misread the way your question was worded. Change the first word of my reply to “no”.

  15. BobCarver says:

    > Are there any studies in the last hundred years that would support any sort of wave theory as a reliable predictor of anything market related?

    Yes, see “Profit Magic of Stock Market Transaction Timing” by J.M. Hurst, published in 1970. He mathematically revealed the cyclic nature of the market down to tick-by-tick transactions.

  16. Thor says:

    JPM – What? Me not be clear? :-)

    Thank you.

  17. Thor says:

    JPM – Here’s one on the predictive power of cycles. . .

    http://www.cxoadvisory.com/calendar-effects/3-cycle-prediction-engine/

  18. willid3 says:

    i am guessing we broke the cycle up until we removed the last bit of protection from the cycles? they kept the economic debacles down to dull roar. but now they are back in full force?

  19. jpm says:

    > Here’s one on the predictive power of cycles. . .

    You will notice the lack of the term “standard deviation” from that site. Anyone quoting an avg without sigma is selling you something (specifically, noise.)

  20. Lord says:

    The solar connection is interesting as the solar cycle is only approximate as well with the latest cycle being delayed due to longer length of interior solar plasma rivers. With the rise of global warming some of the results may alter from warmth for crops to drought heat waves causing shifts over recent decades.

  21. For those of you interested in Fourier mathematics, see The Profit Magic of STOCK TRANSACTIONTIMING by J.M.HURST

    Amazon

    PDF

  22. dsawy says:

    Price and demand cycles are well known in farming and ranching circles, especially among livestock producers. Until recently, there was a very well known cattle cycle that ran about 10 years. It used to be that you sold cows in years that ended in 4, 5 and 6, and you bought cows in years that ended in 9, 0 and 1. I was taught this by ranchers who are in their 80′s and have seen more than a few cattle cycles themselves.

    The other bit of wisdom these old guys passed along was this: “Never, ever, ever carry a note on the herd. Never. Let the banker carry a note on the machinery or the land, but never allow him to loan you money on the herd. Bankers always sell or buy cattle at the wrong time and they will wreck you in 10 years.” In retrospect, this is very sage advice. It is easy to get another piece of machinery if your banker made you sell off the nice shiny new machine you couldn’t afford, but if the banker forces you to liquidate your herd, it is much more than a bunch of cows going down the road – it is your entire breeding program into which you’ve invested decades that is going down the road.

  23. you know, for my own sense, or lack thereof..

    the more I read some of these Comments, the more I feel like exclaiming:

    “Now, my g-d damned Cat is Homeless!”

    ref: http://www.ritholtz.com/blog/2010/07/iphone4-vs-htc-evo/ vid. #1 ~3:00 mark..

  24. jpm says:

    When discussing trading systems involving fluctuations, you want the avg return of your method to be above the standard deviation (otherwise, you are gambling: Some will win, some will lose. The winners will proclaim “I have a great method!”)

    The analogy for fourier methods (or any transform method for that matter) is that the spectrum must yield a peak above the noise-power spectrum. Otherwise, you are again gambling: Some will win, some will lose.

    Note that Hurst discusses fourier transforms of the price, but does not discuss how it relates to the noise power spectrum.

  25. DM RTA says:

    BR, these were great posts yesterday and today.

    blow the dust off your copy of the EWP and read pages 76 thru 82 a few times imagining how different kinds of trending processes you cover here fall into multiple sized cycles. The character of the eight basic waves are out there in all kinds of sizes and forms. The key, I think, is culturing our own sensitivity to particular (group/market) processes and accepting how the financial markets are very unique in how they give us a higher quality of feedback in data streams.

    Consider real estate which I know you understand well. It’s market by market nature is overlapped these days by its national significance. Depending on where you live you have seen very different corrections so far. The peak was clearly the end of a major national trend. That kind of thinking in and of itself is obviously not enough to establish directionality but when you know the biz well enough to lay down the fundamentals, the market psychology, the market’s structural issues, and the trending related issues (nationally and locally) you can develop a reasonable picture of directionality. If you live in a market where prices haven’t moved much but turnover is a faint heartbeat and jobs in the region are stagnant, then the original suspicion that another leg down may be needed begins to form clearly…and the longer view reminds us how the historic mean holds properties as narrow cash flow investments that stay ahead of inflation and a lot of directional movement in a short span may well be needed (in some places). Will it happen? This is where emotionally inspired regulation can really screw up any market for years.
    I worked at a small company in 1997 that sold then for (ballpark) $265 million and today it might be worth 20-25% of that. The industry is in a period of secular change. No good for the owners but healthy for the markets they serve. My main point is how it takes more than a earnest reading of cycle theory to pick up a stick and start finding water. You need to know both the industry and the techniques inside and out. That’s not too common. Imagine real estate without any further government intervention. A lot of people would see a lot of different worrisome scenarios. I see coast to coast tons of freed up productive potential unleashed over time in very positive ways that would benefit the nation more than if prices and rates are forced to remain frozen to prevent the scary night sweats that come with bubbles unwinding.

    Markets are smart and cyclical. Finding waves in varied places is possible but it takes a lot of work to make it actionable. There’s just no way to squeeze it into the world of soundbites. The bigger and the more basic the needs served by a market, the more actionable it is IMHO.

  26. dead hobo says:

    Everybody was so much smarter back then. Now we need computers to do what old farmers used to do back in the day with a stick in dirt. By cracky, what we need are a few good old coots to take over and straighten things out. They would certainly put those Fancy Dan moneymen in their place and give out some good whoopins.

  27. Patrick Neid says:

    Perhaps even more impressive than some of its predictive results is the fact that Mr. Brenner was able to obtain and organize the data to begin with. As late as the 1980′s it was a herculean task to find stock and commodity data at local business libraries etc. Afterwards all the charting and graphing was then done by hand. Think about that as you point and click.

  28. santamonica says:

    Would be funny to read a headline…. Dateline 2513. Stats out 4 minutes ago prove EMF out, Benner cycle in. In related news, Google says all updates will be made and new textbooks to be available in 3 minutes.

  29. bmoseley says:

    FYI
    the 11 year solar cycle have little or no impact on agriculture: the variation of the sun’s output is very small.

  30. mad97123 says:

    Art Cashin has been on a floor broker on the NYSE for UBS for as long as I can remember. His daily missives on CNBC are the highlight of their broadcast day.

    “Back On The Cycle – David Rosenberg, formerly chief economist at Merrill Lynch and now at Gluskin Sheff was a guest host on CNBC’s Squawkbox this morning. During the discussion he alluded to an 18 year cycle in the market. Not to quibble but many traders have thought of it as the 17.6 year cycle. Here’s how I outlined it back in May 2002: Yesterday, as the elders were being asked about the hiding place of the great Bull Market one of the fogeys mentioned the “near 18 year cycle.” Like the fat and lean years, it refers to so-called “easy” times to make money in the market versus times requiring much harder work. The fogeys suggested it was near 18 years because it was approximately 17 years, 7 months. For ease of explanation to the juniors, one of the fogeys decimalized the number as 17.6 years so they could use their calculators. He then postulated this example – Let’s say the markets topped out in about February 2000. Let’s call that 2000.2. Subtract 17.6 and your back in about July 1982 (1982.60). The Dow was around 900. So you could see why those were a fat (easy) 17 years. Take away 17.6 again and you are back around January of 1965 and the Dow is around 900. (Yup – just like 1982.) Many twists and turns in those 17 years. Lots of chances to make money. But you had to work for every penny. Take away 17.6 again and you are back around May of 1947. The war is over. The Dow is around 170. Lots of prosperity ahead. Take away 17.6 and you are back around Sept of 1929 and the Dow is around 350. He began to go on. The juniors had had enough. Folks don’t like to hear that you can do well only if you do your homework everyday. Having lived through two of those cycles, we can attest to the work cycle.”

    Great stuff.

    http://www.ritholtz.com/blog/2009/07/art-cashin-on-secular-cycles/

  31. mad97123 says:

    October’s financial jitters date back to the 1800s. Back then, said Art Cashin of UBS Financial Services, you could chalk it up to the crop cycle. At harvest time, money would leave the city’s major banks to pay for food and grain. That put the squeeze on the financial markets, making them vulnerable to panics. We’re no longer an agrarian society, Cashin notes, but the calendar pattern continues.

    http://www.cbsnews.com/stories/2009/10/05/sunday/main5364333.shtml

  32. Reinko says:

    Why, of all people, Barry Ritholz invites people to look at Fourier analysis is unknown to me.

    Ok, what is life without the contributions of Fournier analysis but if you want to study price cycles like the pig cycle, wheat, cotton, pig iron etc, difference equations is your starting point.

    (Differential equations are the continuous form of the discrete difference equations).

    Stuff like the pig cycle are standard examples within difference equations, anyway, in Europe they are…

    __________

    Although it’s important to understand history, it must be noted that in the present crisis a lot of old ways the economy worked simply don’t apply much longer.

    For example there is little value found in tracing pig iron prices… (These days pig iron might come from China because of low transportation costs compared to the year 1870.)

  33. ben22 says:

    A long time ago Prechter duplicated Benner’s cycle chart from the 1800′s by extending the exact graph of Fibonacci intervals into the 1900′s to extend the cycle. It has had some market respect with the decline into the 1987 market lows, but has since added little timing value for traders.

    I always have found any cycle work very interesting but I would not attempt to trade them.

  34. ben22 says:

    Barry,

    It might be hard to agree that Prechter’s process is not actionable, as I’m to understand it he still holds the record for the US Trading Championship from 1984, where he gained 444.4% in the four month contest using only Elliott Wave, which he recounts in Prechter’s Perspective.

    What do you think?

  35. Andy T says:

    Good stuff BR. Prechter (un)covered Benner a long time ago, fwiw.

    Thanks for giving the cycles a ‘nod’ this week.

  36. Andy T says:

    “Are there any studies in the last hundred years that would support any sort of wave theory as a reliable predictor of anything market related?”

    The Church scientists of the 1500′s probably asked similar questions….

    Keep your mind open….you never know what might come into it!

  37. paraphrasing, the indomitable, Irwin Fletcher: “..C’mon Guys! It’s so simple, maybe you need a refresher Course – it’s all Fractals nowadays..”

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Mandelbrot+Taleb+Fractals
    also, as always, note “Clusters”, on the left-hand side of resultedPage.

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Fletch+Movie+Script+It%27s+all+Ballbearings
    http://www.thefreedictionary.com/indomitable

  38. Thor says:

    AndyT – over here too! You’re on a role tonight

    It was a rhetorical question junior. There are quite a few studies that have been done over the years, all with similar results – it’s as JPM said – nothing more than noise.

    How’s that “If you were as smart as me you’d believe too” working out for you lately?

  39. Fredex says:

    So, projecting Art Cashin’s numbers forward from February, 2000, we can expect a bear market until around September, 2017?

  40. kaleberg says:

    You expect to find all kinds of cycles, especially demographic cycles. I’ve found baby boom demographics makes for good investment strategy since that population bulge was large enough to influence supply and demand. There was also a baby boom back in the 1920s, after the Great War, and we are facing a current baby boom echo with its 18 year old mode a few years back. None of this is precise. Demographics is about pressures, but it is pressures that let one understand, and quite often predict, what to expect from the market.

    If you read Hackett-Fisher’s The Great Wave, a history of European prices and inflation, he points out that European historians have long studied a roughly 200 year demographic cycle with periods of stability and periods of chaos. In a Malthusian society, increased wealth leads to more people which leads to less per capita wealth and then fewer people. In an innovative society the growth cycle can run longer, but it cannot run indefinitely.

    There are all sorts of cycles that flow from simple principles. High meat prices encourage farmers to raise calves. More grown calves mean more cattle. More cattle means falling meat prices. Falling prices discourage farmers from raising calves. You plug that in and take into account how long it takes to build a herd and you get a surprisingly regular cycle. The trick is that the cycle has regularity, but it doesn’t have a lot of predictive power since it is fundamentally chaotic. In fact, it was a simple predator prey model that led to the discovery of chaos theory. That doesn’t mean the theory is useless, just that you can’t use it for timing markets.