I’ve written before in this newsletter about the financial markets. My articles could have left you feeling pessimistic, but cheer up. It ain’t over till the Fibonacci lady sings.

Leonardo Fibonacci da Pisa, as all Mensans know, was a mathematician who lived in Italy during the 12^th and 13^th centuries. He wrote a book called Liber Abaci, in which he introduced the Hindu-Arabic numerals to western merchants and academics. The book also described his answer to a question about the sex habits of rabbits. The solution was a number sequence later referred to eurocentrically as "Fibonacci numbers". In fact, the number sequence was known to mathematicians outside Europe more than 500 years before. The first authenticated appearance was in India (viz. the grammarian Pingala, 450 or 200 BC; the mathematician Virahanka, 6^th century AD).

Home of a typical mathematician

But the Hindu-Fibonacci sequence ("HF") has value beyond describing the sex habits of bunnies. Professional investors, themselves a sexually active bunch, use various series to predict the future and the HF is prominent among them. Researchers see the HF sequence everywhere. These numbers (1, 2, 3, 5, 8, etc.) can be used, for example, to plot market peaks and troughs. Starting from a market peak in 1966 and counting the years using HF numbers, the following sequence results:

In the foregoing chart, accuracy in predicting market lows started with 1974. 1979 and 1987 were also lows. However, the next number corresponded to a market high, followed by the infamous 2001 September 11 crash. The 2000 year in the sequence of lows was one year off. The next year in the sequence is 2021. Will that be a high or a low? Or is it also one year off?

For the answer, I turn to another number sequence used by professional investors, namely the Samuel T. Benner sequence. Perhaps this sequence was also previously discovered by mathematicians. Whatever the origin, however, sexy and not-so-sexy professional investors use it.

Benner observed that market highs appear after gaps of 8, 9 and 10 years sequentially, while market lows and crashes appear after twice the intervals (16,18,20). The following table shows my calculations starting from landmark highs, lows, and crashes. From those calculations, the year 2021, foreseen as significant in the Indian-Fibonacci number sequence is calculated to be a CRASH.

Further, according to the Brenner formula, the present year 2007 is 3 years away from the next market high of 2010 and 4 years away from the next market low of 2011. So party on. The current market selloff will in hindsight be judged as a mild downdraft. The Fibonacci lady doesn’t sing till 2010 or 2011.

(DISCLAIMER: Do not rely on anything written above. These are not predictions or investment/financial advice. They are merely abstract mathematical calculations. Neither I nor Mensa shall be liable for any losses or participate in any gains made by anyone relying on this information. The disclaimers contained in my website Leisurelycashflow.com and the website of mensacalgary.org shall be interpreted cumulatively and apply to this article. Copyright 2007 Raymond T. Lee. All rights reserved.)

(by raymond t. lee)

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