EPILOGUE: MANIC-DEPRESSIVE MAN

J. Adams
UConn Department of Economics Graduate Program
August 20th, 2009

ORIGINAL 1994 PAPER

SEE MY BLOG FOR UPDATES

Epilogue: Table Of Contents
  1. Introduction
  2. Price Patterns in Markets
    1. Dow Theory
    2. The Elliott Wave Principle
    3. Thousand Mark Psychological Barriers
    4. The Kondratieff Long-Wave
  3. Contrarianism & Irrational Exuberance
  4. Manic-Depressive Mass Psychology & Seasonality
    1. Initial Discovery
    2. Seasonality
    3. The Global Bipolar Disorder
    4. A Supernatural Warning?
  5. Conclusion


- Introduction -

"The financial crisis has killed the claim that economics deserves to be treated as a science. The measure of a science is its capacity to explain, predict, and prescribe. And most economists not only failed to anticipate the nature and evolution of the catastrophe, but their conflicting recommendations on how to stabilize the situation exposed the unreliability of their knowledge. As much as Wall Street and Main Street, the economics profession needs a bailout of its own." - Moisés Naím, Editor in Chief, Foreign Policy, Jan-Feb. 2009

However, if you believe in free will you can't truly believe in social science and economic projection. You cannot predict how people will act. Except, of course, if there is a trick, and that trick is the cord on which neoclassical economics is suspended. You simply assume that individuals will be rational in the future and thus act predictably. There is a strong link between rationality, predictability, and mathematical tractability. A rational individual will perform a unique set of actions in specified circumstances. There is one and only one answer to the question of how "rational" people satisfying their best interests would act. Rational actors must be coherent: they cannot prefer apples to oranges, oranges to pears, then pears to apples. If they did, then it would be difficult to generalize their behavior. It would also be difficult to project their behavior in time.

In orthodox economics, rationality became a straitjacket. Platonified economists ignored the fact that people might prefer to do something other than maximize their economic interests. This led to mathematical techniques such as "maximization," or "optimization," on which Paul Samuelson built much of his work. Optimization consists in finding the mathematically optimal policy that an economic agent could pursue. For instance, what is the "optimal" quantity you should allocate to stocks? It involves complicated mathematics and thus raises a barrier to entry by non-mathematically trained scholars. I would not be the first to say that this optimization set back social science by reducing it from the intellectual and reflexive discipline that it was becoming to an attempt at an "exact science." By "exact science," I mean a second-rate engineering problem for those who want to pretend that they are in the physics department - so-called physics envy. In other words, an intellectual fraud. - Nassim Taleb, The Black Swan: The Impact of the Highly Improbable, 2007


"TO UNDERSTAND HOW economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people's ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature." - The first paragraph of Animal Spirits: How Human Psychology Drives The Economy and Why It Matters for Global Capitalism, George Akerlof & Robert Shiller, 2009

In the Spring of 1987, during my senior year of high school, I wrote a term paper for an economics class entitled The Second Great Depression. In it, I warned that the world economy could be on the verge of another 1930's style depression based upon long-wave patterns in stock prices and economic change.

After graduating and moving on to college, in the fall of 1987, I took my first course in economics at UConn with Professor William McEachern, now an esteemed author of a widely used economics textbook (McEachern, 2003). While taking this course, as I was being taught about market price equilibrium, the stock market crashed culminated in a 22% drop on a single trading day in late-October of that year.

As I observed at the time, the parallel pattern between the 1929 and 1987 stock market crashes was impressive:


Figure 1

Was history repeating itself? Would a second Great Depression follow the stock market crash?

Fortunately, at that juncture, history did not repeat and the long-term bull market on Wall Street and uptrend in social mood, risk-taking behavior and innovative economic activity resumed.

Nevertheless, what became clear to me as a young college student was that there was some sort of disconnect between what I was being taught in economics about market behavior and how markets behave in reality. The huge stock market gyrations in 1987, with little or no significant changes in economic fundamentals, was not indicative of a tendency toward price equilibrium in financial markets. As my economic studies progressed, all the way to the doctorate level over the subsequent nine years, the divergence between what I was being taught in academia and boom-bust historical economic realities I studied on my own grew profoundly worse. While learning about General Equilibrium Theory, Rational Expectations and the Efficient Market Hypothesis in class, I was independently learning the work of key long-wave theorists such as Robert Prechter, who popularized the Elliott Wave Principle, Nikolai Kondratieff, who identified a long-wave pattern in the economy that bears his name, and Joseph Schumpeter, who wrote an exhaustive treatise, Business Cycles, that sought to highlight the role of innovation, credit and sentiment as primary causes of historical economic fluctuations.

The attached paper, Manic-Depressive Man, was submitted to the UConn Department of Economics 15 years ago as part of my Master's Degree program. It was not accepted at the time and my degree remains unconferred. It is now being resubmitted in the hope that the work done to-date constitutes at least a Master's level comprehension of economics, even if the associated "science" being taught is fundamentally called into doubt by my 1994 paper and this epilogue.

Manic-Depressive Man constitutes my second major writing on the threat of another Great Depression in the world economy. In this work, on top of presenting a warning of an upcoming historic cyclical collapse, I advance a new hypothesis to explain and predict the behavior of market societies such as our own based upon what I believe is the primary role of irrational mass psychology in generating economic instability. While boom-bust fluctuations in mass mood, thoughts and behavior may be deemed negative, it may actually be the principal source of innovation and technological development, i.e., creative thought, that is behind the economic progress of human history. In this sense, man as a species appears to be suffering en masse from what would be deemed in an individual to be a bipolar disorder, i.e., manic-depression, a condition often associated with creative genius (Herschman & Leib, 1988).

Given the large time gap since this paper was submitted, in this epilogue I will update my work based upon recent history and new available knowledge. In particular, I will highlight how the stock market and economy topped out and have reversed into a second Great Depression as anticipated in my original paper. Furthermore, I will detail the insights of Chris Carolan concerning the seasonality of mass mood swings that pinpointed the autumn financial panic last year literally to the day. Third, I will present the case for another mass panic and potential suicide attempt by our species, possibly in October of this year, based upon current available information and my prior supernatural insights. I will then conclude my work with a possible solution to man's persistent irrationality and inability to learn from past mistakes.


- Price Patterns in Markets -

"No one has yet produced a version of the EMH (Efficient Market Hypothess) which can be tested and fits the evidence. Thus, the EMH must logically be discarded, as a valid hypothesis must be testable." -Andrew Smithers, The Economist, 8/11/09

"In the last decade, the Efficient Market Hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices — meaning that perhaps the market isn't quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum." - Joe Nocera, New York Times, 6/5/09


“(The EMH) represents one of the most remarkable errors in the history of economic thought.” - Robert Shiller


"There may be a recession in stock prices, but not anything in the nature of a crash." - Economist Irving Fisher, New York Times, 9/5/29

"Stock prices have reached what looks like a permanently high plateau." - Economist Irving Fisher, 10/17/29



Dow Theory

In the first part of Manic-Depressive Man, dubbed "An Inefficient Market Hypothesis", I overview three systems used by stock market chartists to predict future price movements based upon past price patterns, something that is impossible according to even the weakest form of the Efficient Market Hypothesis (EMH) (Fama, 1965 & 1970; Samuelson, 1965) and the idea that stock prices follow an unpredictable "Random Walk" (Fama, 1965; Malkiel, 1973).

The first technique I examined is Dow Theory:

According to Dow Theory, stock market "buy-" and "sell-signals" occur when, usually following divergences, all the averages confirm a reversal in stock prices by reaching new highs or lows in the given trend, respectively. The value of this investment strategy is impressive and statistically significant. Between 1897 and 1981, an investor who bought and sold stocks according to Dow Theory buy and sell signals would have reaped a return more than nineteen times that achieved from buying-and-holding (Pring, 1985).

One should note that the reason the Dow Jones Industrial, Transportation and Utility Averages appear on top of each other in the Wall street Journal each day is to reveal divergences and help investors determine Dow Theory buy and sell signals. Thus, Dow Theory, which has accurately signalled most of the major turning points in stock market history, uses information from historical price charts to anticipate the future movement of stock prices; something the EMH implies is not possible.

Below are two-year charts of the Dow Jones Industrial (DJIA), Transportation (DJTA) and Utility (DJUA) Averages published regularly by the chartist web site, Decision Point, for Dow Theory comparison purposes. As can be seen, the three averages topped at different times: the DJIA peaked in October 2007, the DJUA topped in January of 2008 and the DJTA peaked in May of 2008. Then, in early-October of 2009, a major Dow Theory sell signal occurred as all of the indices broke to new relative lows in their primary trends:


Figure 2

Thus, Dow Theory signalled that a long-term bear market began on Wall Street last year.


The Elliott Wave Principle

The next section of my 1994 paper dealt with the Elliott Wave Principle (EWP) developed by Ralph N. Elliott in the 1930s and popularized by Robert Prechter over the past 25 years through his Elliott Wave Theorist (EWT) investment letter. As explained, the EWP holds that stock prices move in wave-like patterns that abide by fractal geometry such that any given wave-structure is composed of smaller wave-structures comparable to the whole. This is shown graphically below:


Figure 3

Since the wave patterns are with regard to scale, one can surmise the relative importance of given turning points based upon prior price patterns.

One of the reasons Robert Prechter's work with this theory has garnered attention is because, if the EWP is correct, then we should be entering an epochal downturn in human history; what's deemed a Grand Supercycle, or even Millenium Cycle, scale decline some 200 to 1000 years in the making. That such a historical reversal may now be underway can be understood by examining charts of stock prices and general prices to look for the following pattern completions:


Figure 4

To look for the first pattern, the Millenium Cycle, examine the following chart presented in the chapter on long-term waves from Frost and Prechter's Elliott Wave Principle (1978). Since stock markets have not been around for 1000 years, the authors' utilized a long-term price index compiled based upon a simple 'market basket of human needs' for the period from 950 A.D. to 1954:


Figure 5

A distinct five-wave pattern in the general price level is visible since the end of the Dark Ages. (Note that Robert Prechter now believes that we are in the Grand Supercycle third wave of a Millenium Cycle third wave, not a final fifth wave of a Millenium Cycle.) This Millenium Cycle upswing marks the rise of Western Civilization in the wake of the collapse of the Roman Empire and subsequent Dark Ages that lasted to around the end of the first millenium A.D.

Notably, the last Millenium Cycle downturn and associated collapse of the Roman Empire can be traced starting around the time of Christ's crucifixion. Below is a chart the reflects the breakdown in the value of Roman currency as less and less actual silver was used:


Figure 6

As for the Grand Supercycle that started at the end of the Millenium Cycle fourth wave into the late-eighteenth century, that can be charted in stock prices since Wall Street opened in 1792 combined with British stock prices beforehand:


Figure 7

Again, a rising five-wave Elliott Wave pattern can be discerned.

The final fifth wave of Supercycle degree started from the nadir in the stock prices associated with the worst of the 1930s Great Depression. As is clear, another five-wave pattern, of which each wave can be broken down into a smaller-degree Elliott Wave, formed into a final peak in October 2007 just above the Dow 14,000 mark:


Figure 8

At the stock market was topping between July and October 2007, Robert Prechter issued the following calls for a major decline with advice to be in cash and/or short U.S. stocks in his Elliott Wave Theorist (EWT) investment letter:

JULY  17, 2007

ELLIOTT WAVE THEORIST

INTERIM REPORT

Even though the Dow has closed up for the past three trading days, the average advance/decline ratio for this time is below 1.00, indicating that more stocks fell each day on average than rose. Weak breadth over the past five trading days relative to Dow points gained confirms this rise as all or part of a fifth wave. If the Dow is rising from a flat correction ending late June, it will have one more pullback and rise on the daily chart. But if it emerged from a triangle ending a week ago, the rally is a thrust (see text, p.51), and it is topping now.

The Dow has risen 750 points since the low associated with our late June “cover” point. Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that's enough to act upon.

We are sometimes asked why the market has not “reacted to the bad news about mortgage debt prices.” The very existence of the Wave Principle means that the market does not react to news; it moves in its own waves. News, in fact, tends to follow the markets to which it relates. Housing stocks topped out two years ago, indicating that optimism in that sector peaked at that time. Today's news about mortgages is a lagging result of that top. When stocks start down again, news relating to the stock market will get worse. Then people will say that the stock market “finally” reacted to the news about real estate loans, as if informed investors really wait weeks or months to react to the obvious. Reading waves is a challenge at times, but doing so at least keeps you focused on what matters.

_________________________________________________

AUGUST 26, 2007

ELLIOTT WAVE THEORIST

What To Do

Needless to say, speculators should stay with the “fully leveraged short position” that EWT recommended in its special bulletin of July 17, the day of the high. With so many bearish indications in place, we currently have no provisions for a stop.

Investors should stay in the safest cash equivalents . There is a high probability that a financial crisis will expose weaknesses in overly leveraged banks . Make sure you are not one of the suckers who has lent them deposits. Real estate, stock shares, commodities, most bonds (corporate, municipal and mortgage) and even most bank CDs are likely to produce losses eventually, in some cases up to 100 percent by the end of wave c . (Some hedge-fund investors and real-estate speculators have already lost 100 percent of their capital.) I presume our readers took steps some time ago to protect their savings by keeping them in Treasury bills, Swiss money market claims, outright cash and as deposits in one or more of the perhaps dozen truly safe banks, money-market funds and insurance policies in the world, as instructed in Conquer the Crash . T-bills have outperformed the S&P 500 for the past seven years, and their relative performance is likely to soar in coming weeks and years, simply by not producing losses.

_________________________________________________

OCTOBER 19, 2007

ELLIOTT WAVE THEORIST

Near Term Picture

Despite every chart presented in this issue, there is no guarantee about timing. Any euphoric period that has persisted for nine years can continue to do so. There are various scenarios for this top formation, so stay tuned to The Elliott Wave Financial Forecast and the Short Term Update for current commentary.

On July 17, EWT recommended that aggressive speculators take a fully leveraged short position. That time marked the all-time peak in several indexes, including the Dow Jones Transports (topped 7/18) and secondary averages such as the Value Line Arithmetic index (topped 7/13). Our proxy for this type of recommendation is S&P futures. The December futures contract at that time (close on 7/17 to open on 7/18) was 1570.25-1572.25. The August 26 issue outlined the bearish seasonal period that carries through October 26. EWT made clear on page 1, “This observation does not rule out a new high within this period.” The major averages crawled to a new high in the second week of October. The futures contract made a new intraday high by only 7 points, closed down on that day and has fallen since. Place a stop at 1571.25, which is break-even. If stopped, use the post-October-12 low as a level to re-short.

Like all indicators, seasonal patterns are probabilistic. The ending of this period has no reliably bullish implications, because the evidence of bearish potential given throughout the charts in this issue trumps every small-time bullish portent. In 1973 (34 years ago), the Dow and S&P bottomed on August 22, soared until October 29, and then collapsed in November to below the starting point of the rally. The Fed meets this year on October 31, and investors are breathlessly awaiting the next discount-rate cut, as if it were bullish.

Investors holding interest-bearing cash equivalents have outperformed the S&P for over seven years. Hold onto that cash with both hands.


Following those bearish forecasts from Robert Prechter, the U.S. stock market and world economy began a historic decline that marked the onset of what today is being referred to as the "Great Recession" and what someday may be remembered as a Great Depression, if not something worse. As the housing bubble popped and credit markets collapsed, the DJIA plunged more than 50% by March of this year. This breakdown in stock prices took the form of a distinct five-wave Elliott Wave pattern on the downside, an impulse pattern that is expected according to the tenets of the EWP when a large-degree bear market is underway:


Figure 9

As the U.S. stock market found a bottom in late-February/early-March of this year, Robert Prechter, seeing the distinct Elliott Wave pattern into the low, issued a call for a major rebound in the February issue of his EWT investment letter and recommended investors cover any shorts established at the top in 2007. “The market is compressed,” he observed. “When it finds a bottom and rallies, it will be sharp and scary for anyone who is short. I would rather be early than late.” “This is an environment of escalating financial chaos,” wrote Prechter. “Our main job is to keep the money we have. If we exit now, we will do that.”

Soon after that forecast a major bear market rally ensued that has carried the DJIA back above the 9000 mark in recent weeks. Since the DJIA retraced a Fibonacci proportional 38.2% of the previous market decline, a tenet of the EWP, on August 5th Robert Prechter released his monthly investment letter early with the following heading:

The following chart was presented to detail Prechter's perspective:


Figure 10

If or when the Primary Wave 2 rebound in the stock market is complete, then the next major leg down in the Grand Supercycle bear market will be underway. This means we are entering Primary Wave 3 down, which is usually an extended wave that is often associated with major crashes and panics and the crux of the given movement.

In this light, consider the following remarkable chart comparison, from David Rosenberg of Gluskin Shef, of the 1929 to 1932 stock market rebound and collapse with the current bear market rally:


Figure 11

From the respective stock market tops to the November 1929 low and March 2009 low, the DJIA fell 49% and 52%, respectively. After the 1929 low, stocks staged a 155-day rally of 50%. Likewise, since the March low this year, stocks have climbed 50% on average over the course 150 days.

Is history repeating itself?

If so, then the next downturn will likely be of historically unprecedented scale. In the context of a Millenium-degree Elliott Wave pattern, the closest match to what comes next is the collapse of the Roman Empire during the first few hundred years A.D. as charted above. Accordingly, the collapse of Western Civilization should be deemed a likelihood in the coming months and years.


Thousand Mark Psychological Barriers

In the next part of Manic-Depressive Man, I noted the tendency for the stock market to peak out around thousand market psychological barriers in widely watched indices like the DJIA.

Historically, when the major stock averages, and the DJIA in particularly, reach or trade around psychologically important round numbers like thousand marks, the stock market may top-out and, failing to hold near or above the mark, sharply reverse course. A remarkable feature of these stock market reversals at thousand marks in the DJIA is that they are often associated with negative news, i.e., seemingly "exogenous shocks", that follows the market top.

For instance, on September 6th of 2001, the DJIA fell decisively below the 10,000 mark, THEN September 11th occurred driving the market down sharply:


Figure 12

Thus, when the DJIA reversed decisively from 10,000 in September of 2001, the breakdown in Western confidence manifested as the literal collapse of a key symbol of Western financial prowess and American global economic hegemony....the World Trade Center towers in New York City. Likewise, a blow occurred against the Pentagon in Washington DC, the symbol of American global military hegemony.

There are other major examples of significant negative historical events erupting in conjunction with reversals from key thousand marks in the DJIA.

Right after the DJIA failed at Dow 8000 in late-October of 1997, a mini-crash occurred in association with a financial panic in Asia.



Figure 13


In 1997, the Dow reversed from the 7000 mark and the Fed raised interest rates for the first time since 1994 up to that point leading to a ten percent market correction.


Figure 14

Likewise, when the Fed hiked interest rates in 1994 precipitating a year-long correction in the stock market, it occurred right after the Dow reversed from the 4000 mark in late-January of that year.


Figure 15

In the summer of 1990, the DJIA reversed from 3000 and then Iraq invaded Kuwait, thereby triggering a Persian Gulf crisis and major oil-shock that caused the world economy to slip into a recession and stock prices to plunge by 25 percent. Notably, the DJIA topped by closing two days in a row at exactly 2999.75 on July 16th and 17th of that year (did not close above 3000 until the following year):



Figure 16


Finally, between 1966 and 1982, the DJIA reversed from the "Magic 1000" barrier several times. After each reversal, all kinds of troubles emerged ranging from OPEC oil embargoes, to the Vietnam War, to Watergate. One of the most notable cases occurred in October of 1973 when the DJIA rose to just below Dow 1000 as the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged in the largest market correction up to that time since the Great Depression.


Figure 17

As for the final Grand Supercycle top in the stock market, this occurred at Dow 14,000. As reflected in the quotes above from the Robert Prechter's Elliott Wave Theorist investment letter between July and October of 2007, some indices topped in July of that year and some in October. Specifically, in terms of the DJIA, a closing high of 14,000.41 was reached on July 19th, 2007, after which the DJIA fell 10%. Then the index climbed to an all-time closing high of 14,164.53 on October 9th of that year, the Grand Supercycle top, since which prices have fallen dramatically as a historically unprecedented financial crisis and the 'Great Recession' have impacted the world economy.


Figure 18

One should also note that the tech-heavy Nasdaq Composite reached it's all-time high at the psychologically important 5000 mark in March of 2000 at the peak of the "dot-com" bubble:


Figure 19

This might be relevant now because, while the DJIA is hitting resistance at the Fibonacci 38.2 % retracement level (see above), the Nasdaq Composite is meeting resistance at the psychologically important 2000 mark:


Figure 20

It's also possible the stock market will rebound back to Dow 10,000 before reversing.

Again....is history repeating itself?

If so, will negative historical shocks beyond financial and economic affairs be involved with the next major reversal?


The Kondratieff Long-Wave

After examining price patterns in the stock market in my 1994 paper, I focused on long-waves in business activity, better known as the Kondratieff Wave.

The long-wave, discovered by the Russian economist Nikolai Kondratiev (also written Kondratieff) and brought to international attention in his book The Major Economic Cycles (1925), is a large-scale cycle in general prices and economic activity that consists of four major phases outlined below:


Figure 21

As I noted in Manic-Depressive Man:

The first phase is a twenty to thirty year period of steadily climbing prices, stable growth and rising productivity. It is capped by a spike in general prices. The surge of inflation is eventually broken by the second phase of the Kondratieff Wave: a sharp "primary recession". In the wake of the primary recession prices stabilize and the economy enters a "speculative blow-off" - the third phase of the Kondratieff Wave. The speculative blow-off lasts a decade-or-so and involves price disinflation, general euphoria, heightened consumption and investment activity, risky speculation, excessive debt accumulation and other such financial excesses. The bubble eventually pops, however, and the social mania is broken, usually with a sharp panic. A dramatic breakdown in sentiment and financial conditions hits society and a ten to twenty year period of general malaise and economic stagnation takes hold that is known as the "secondary depression".

I then provided a historical narrative of the three completed and fourth incomplete long-waves in U.S. history, noting that, as of that writing, we were in the midst of a disinflationary, speculative blow-off phase. Through persistent reflation efforts by federal authorities, the onset of a secondary recession was pushed back further and further, but last year the forces of deflation and depression took hold and, following an autumn financial panic, the Kondratieff secondary depression began.


Figure 22

That the global economy is entering a Great Depression rather than simply a Great Recession is evident in these chart comparisons between now and the 1930's of world stock markets and world trade:


Figure 23

As with the onset of the Great Depression after the 1929 stock market crash, since last year's financial panic, corporate earnings and industrial production have been collapsing in an unprecedented manner:


Figure 24


Figure 25

Lastly, the general price level, which has been inflating steadily since the end of the Great Depression, has suddenly turned negative, shocking almost all economic observers....except for Robert Prechter, that is:

If the Kondratieff cycle performs normally, the combined rate of change for the PPI and CPI will soon go negative. Whatever the cycle's timing may be, its sequence calls for several more years of declining commodity prices, a few years of newly declining wholesale and retail prices and a sharp decline in industrial production. These trends will end when the deflation ends, at the bottom of the cycle....If the cycle lasts as long as the longest cycle of the past three centuries, the depression would end in 2011. (Prechter, 2002)


Figure 26

The general deflation in aggregate prices is particularly pronounced in the housing market where boom turned to bust after 2007:


Figure 27

Once again....is history repeating itself? Has the second Great Depression begun?


- Contrarianism & Irrational Exuberance -

“The Great Depression, like most other periods of severe unemployment,
was produced by government mismanagement rather than by any inherent instability of the private economy.”

- Milton Friedman

“How do we know when irrational exuberance has unduly escalated asset values?”
- Alan Greenspan

“The basic prescription for preventing deflation is straightforward, at least in principle:
Use monetary and fiscal policy as needed to support aggregate spending,
in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation.
In other words, the best way to get out of trouble is not to get into it in the first place.”

- Ben Bernanke

“Little will be done to stop these things if public figures consider themselves beholden to some overarching
efficient markets principle and do not even recognize over-speculation as a real phenomenon.”

- Robert Shiller

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

"The spring of 1930 marks the end of a period of grave concern...
American business is steadily coming back to a normal level of prosperity."

- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

In the second part of Manic-Depressive Man, I overview how the stock market gyrates between extremes of optimism and pessimism thereby creating opportunities for contrarian investment strategies like that employed by David Dreman, author of Contrarian Investment Strategy: The Psychology of Stock Market Success (1980).

This section opens up with the following paragraph:

At the end of Robert Prechter's "Elliott Wave Theorist" investment letter, the following explanation appears: "The Elliott Wave principle is a detailed description of how markets behave. The description reveals that mass investor psychology swings from pessimism to optimism and back in a natural sequence, creating specific patterns in price movement." The reason that Prechter believes market waves are caused by bipolar swings in popular mood is because at market tops and bottoms the consensus beliefs and expectations of investors are irrationally optimistic or pessimistic, respectively. Ups and downs in market prices are thus caused by the back and forth upset of investor expectations.

I then spent 25 pages and 18 figures presenting "The Empirical Case For Contrarianism" based upon historical bubbles and evident patterns of swings between optimistic and pessimistic extremes in markets and society. The historical record, however, only hinted at the scale of collective insanity that, after submitting my paper, would unfold over the subsequent 15 years in world capitalism.

In reaching an Elliott Wave Grand Supercycle, if not Millenium Cycle, peak, the degree of collective optimism, or, as Alan Greenspan coined it, "irrational exuberance", that took hold was unprecedented in human history. Between 2000 and 2007, stocks, bonds and real estate were caught up in speculative bubbles like the world has never seen.

As for the stock market, the degree of relative "overvaluation" attained by the turn of the millenium was truly preposterous.

In my 1994 paper I overviewed numerous commonly used measures of market valuation applied by contrarians seeking investment timing opportunities such as dividend yields and price-to-earnings (P/E) ratios.

With regard to dividend yields, Robert Shiller's 1981 paper, “Do stock prices move too much to be justified by subsequent changes in dividends?”, highlighted how the stock market fluctuates above and below fair value for stocks based upon the future expected return from dividends:


Figure 28

By the year 2000, the price of stocks relative to expected dividends stretched to a historically unprecedented extreme. By early-2000, the average dividend yield for the S&P500 had fallen to just above 1%:


Figure 29

 


Figure 30

As for the P/E ratio, this is one of the most obvious pieces of information that investors historically fail to incorporate into their investment decisions as reflected in the following scatter plot diagram presented in Robert Shiller's Irrational Exuberance (2006):


Figure 31

Robert Prechter, in highlighting the historic overvaluation of stocks in Conquer The Crash (2002), used a composite measure of stock market valuation based upon dividend yields and price-to-book-value ratios. As can be seen, by the year 2000 stock market valuation was effectively 'off the chart' relative to historical norms:


Figure 32

The speculative peak in stocks as reflected in relative historical overvaluation was reached in the year 2000 with the extreme of the "dot-com" bubble in technology and internet stocks. This is reflected by how the technology-laden Nasdaq Composite topped above the 5000 mark in the Spring of that year as noted above.

After the high-tech stock market bubble popped, with the Nasdaq Composite falling by more than 60% within a year, the Federal Reserve reflated the economy and this time money flowed into a real estate and credit bubble facilitated by a tidal wave of securitization and financial derivatives.


Figure 33

The flood of liquidity from structured finance that grossly inflated housing prices combined with insatiable demand from irrationally exuberant consumers and businesses to form a historically unprecedented credit bubble. By the beginning of the Great Recession now underway, total U.S. debt reached above 350% of GDP:

Figure 34

Probably the most absurd part of the global leveraging process occurred amongst the financial institutions that were feeding the mania. As part of the structured finance that made the credit bubble possible, a derivatives market emerged that by 2008 had a notional value greater than a quadrillion dollars, or more than five times total world GDP:


Figure 35

This highly leveraged position of major banks around the world is what led to the financial panic last autumn. As the housing bubble burst after 2007, excessively leveraged institutions like Bear Stearns, Lehman Brothers, Fannie Mae and Freddie Mac quickly became insolvent.

To stop a complete implosion of the global financial system, federal intervention to the tune of $3 trillion has thus far occurred with a gross government exposure of $23.7 trillion, or nearly twice the annual U.S. GDP (according to Troubled Asset Relief Program special inspector general Neil Barofsky- Bloomberg, 7/20/09). Meanwhile, as the world economy continues to contract, the financial system's vulnerability has not been assuaged as can be seen in the total exposure of remaining major U.S. banks:


Figure 36

Even in light of the rather dire fundamentals, irrational exuberance has returned to Wall Street with the 50% rise in stock prices from the March low. In recent weeks, the level of optimism amongst investors has reached the highest level since October 2007 when the DJIA peaked above 14000:


Figure 37

According to Bank of America/Merril Lynch:

Investor optimism over the global economy reached the highest level in nearly six years in August, as money continues to pour into equities, according to the Banc of America Securities-Merrill Lynch August survey of global money managers.

"Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March," said Michael Hartnett, chief equities global strategist at Banc of America Securities-Merrill Lynch Research, in the report which surveyed 204 fund managers who manage a total of $554 billion.

A net 75% of survey respondents believe the world economy will firm up in the next 12 months, the highest reading since November 2003, while confidence about corporate health is at the highest since January 2004. A net 70% of panel respondents expect global corporate profits to rise in the coming year, up from 51% last month.

Meanwhile, average cash balances are at the lowest levels since July 2007, while equity allocations rose sharply between August and July -- from 7% to 34%. (MarketWatch, 8/19/09)

What's most incredible about the increasingly positive outlook for corporate America is that, since actual earnings have plummeted, the current average P/E for the S&P500 was surged to a record extreme:


Figure 38

Thus, we are currently in the midst of another irrational extreme of collective optimism. The next swing down, as large-scale Elliott Wave patterns appear to be forewarning, may be of epic proportions.


- Manic-Depressive Mass Psychology & Seasonality -

"Markets have always had a manic-depressive quality to them..."
Dreman, Psychology and the Stock Market (1980)

"In individuals, insanity is rare, but in groups, parties, nations and epochs it is the rule."
- Nietzsche, Beyond Good and Evil (1886)


Initial Discovery

In the third major part of my 1994 paper I specifically present my diagnosis of Manic-Depressive Man. I opened the final section as follows:

Thus far, a substantial body of empirical evidence has been presented which strongly suggests the behavior of markets and society in general is literally insane. Specifically, man as a species currently appears to be suffering from collective emotional and mental instability that is manic-depressive in character. Wave patterns in stock prices, business cycles like Kondratieff's long-wave and contrarian phenomena exist because the collective mood of investors and social participants swings between irrational extremes of optimism and pessimism.

-The Initial Discovery-

In 1992, I proposed the idea of "manic-depressive man" in a letter written to Elliott Wave theorist Robert Prechter:

I have just tapped upon a new theory which I'm sure will interest you very much. I've discovered something which seems to tie together wave theory, mood swings, and the dynamics of social change in an extraordinary way. As a whole, man may very well be insane at present- grossly out of touch with reality. specifically, the mass psychology of humanity (or at least Western Civilization) may be at the end of an unprecedented episode of creative mania and is about to sink into a severe depression which could ultimately lead to self-destruction.

Next, over the course of 25 pages and with 11 figures, I make the case that the irrational mood swings of our society are consistent with the criteria for diagnosing a bipolar disorder (the clinical term for manic-depression) in individuals. Social manias involve distinct periods of elevated feelings and over-optimism, increased goal-oriented activity, overactive imagination, reckless over-consumption and risky speculation and investment activity. Likewise, social depressions also meet psychiatry's criteria for bipolar illness: depressed mood, general apathy, inactivity and listlessness, slowed thought and poverty of ideas, and sharply reduced consumption and investment activity. Also, during depressions there's a propensity for panics, i.e., boughts of overwhelming irrational fear.


Seasonality

One of the key features of man's manic-depressive disorder is the seasonality that matches what occurs in individual bipolar patients. The following diagram from Manic-Depressive Illness (Goodwin & Jamison, 1990) was presented in my earlier work:


Figure 39

As can be seen there's a propensity for major depression and suicide in manic-depressives in the Spring and Fall.

This pattern is also evident in society. Financial panics during the autumn are fairly common due to the seasonality of mass mood swings. As is widely recognized, the stock market has a tendency to fall during the Fall. In fact, thirteen of the twenty worst single-day percentage drops in the DJIA occurred between late-September and early-November, i.e., 65% of the twenty largest daily drops in the stock market occurred in a time interval that constitutes less than 14% of the annual calendar.

Dow Jones Industrial Average: Worst Single-Day Declines
(Dow Jones Industrial Average, percentage change)


                               Percentage
Date                           Decline
__________________________________________
October 19, 1987                  -22.61%
October 28, 1929                  -12.82%
October 29, 1929                  -11.73%
November 6, 1929                   -9.92%
December 18, 1899                  -8.72%
August 12, 1932                    -8.40%
March 14, 1907                     -8.29%
October 26, 1987                   -8.04%
October 15, 2008                   -7.87%
July 21, 1933                      -7.84%
October 18, 1937                   -7.75%
December 1, 2008                   -7.70%
October 9, 2008                    -7.33%
February 1, 1917                   -7.24%
October 27, 1997                   -7.16%
October 5, 1932                    -7.15%
September 17, 2001                 -7.13%
September 24, 1931                 -7.07%
July 20, 1933                      -7.07%
September 29, 2008                 -6.98%
Figure 40

While the propensity for the stock market to crash in the September/October period of a Gregorian calendar is a remarkable phenomenon on its own, what is even more profound is that there is a very specific tendency for collective panics to climax into the SAME DAY using a lunar calendar.

Parallels between the 1929 and 1987 October stock market crashes led Chris Carolan, a technical market analyst and former option pit trader, to notice an important seasonal characteristic of mass mood. There is a tendency for collective panics to peak into the 27th and 28th days of the 7th month of a lunar year on the Jewish calendar (11 days after Sukkot - the Feast of Tabernacles). In his award-winning article, Autumn Panics: A Calendar Phenomenon (1998), Carolan points out how the 1929 and 1987 stock market crashes, along with the 1997 Hong Kong stock market crash, climaxed into the 27th and 28th days of the 7th lunar month, with the "black" crash days occurring on those specific lunar calendar days:

Figure 41

He further points out in his article that this pattern was the same with the historic financial panics in 1857 and 1907....crash days occurred on the 27th and 28th days of the 7th lunar month in those years as well. Also, Carolan notes that panic days occurred on the 27th and 28th day of the 6th lunar month in the 1873 financial panic, the largest such event prior to 1929. (The 28th day of the sixth lunar month is equivalent to three days before Rosh Hashanah. Note that this pattern repeated with the 9/11 panic in 2001.)

As for 2008, the 27th day of the 7th lunar month occurred on October 24th (10/25 was a Saturday). On that day, while there was no '87-style one-day crash in stock prices, the implied volatility index (VIX) for stock option pricing, which measures the overall level of fear on Wall Street, reached a historic extreme near 90 in association with the financial panic underway at the time:


Figure 42

The VIX index has been headed down ever since.

One should note that the tendency of mass panics to occur into late-October is not only constrained to financial markets. Interestingly, the most severe East-West nuclear confrontations as measured by the highest levels of nuclear alert in the U.S., i.e., NORAD's DEFCON status, were reached into the 28th day of the 7th lunar month during the October 1962 Cuban Missile Crisis and the October 1973 'Yom Kippur' Arab-Israeli War.

The Cuban Missile Crisis is remembered as Thirteen Days in October. Those thirteen days, October 16th to 28th in 1962, fit the lunar calendar in parallel with the 1929 and 1987 stock market crashes as well as the Yom Kippur War crisis in 1973. The Cuban Missile Crisis began soon after the full moon of the 7th lunar month, which occurred on October 13th of that year. The crisis reached its zenith when the U.S. nuclear alert was raised to DEFCON 2 on October 25th, the 28th day of the 7th lunar month that year.

Likewise, the 1973 Yom Kippur War crisis unfolded in a seasonal pattern consistent with Carolan's autumn panics. After Syria and Egypt launched a surprise attack on Israel on October 6th, 1973, the U.S. intervened on behalf of the Israelis and the Soviet Union intervened on behalf of the Arabs. The U.S.-Soviet confrontation started to take full form just before the October 12th full moon:

Oct. 11 - Israel attacks Syria from its positions on the Golan Heights. The Soviet Union's ambassador to the United States, Anatoly Dobrynin, tells U.S. Secretary of State Henry Kissinger that Soviet airborne forces are on the alert to defend Damascus. Kissinger warns Dobrynin that if the Soviets send troops to the Middle East, the United States would as well.

By late October, 13 days after the full moon, a full-scale East/West military confrontation was underway. This led the U.S. to go on high nuclear alert with the DEFCON status being raised to 3 on October 24th of that year, the 28th day of the 7th lunar month. This was the second highest level of nuclear alert ever reached next to the Cuban Missile Crisis.

Thus, we have a remarkable historical pattern of panic extremes in mass mood occurring into the 28th day of the 7th lunar month. This might take the form of a financial panic climax, as occurred in 1857, 1907, 1929, 1987, 1997 and 2008....or it can take the form of a nuclear confrontation between East and West, as occurred with the 1962 Cuban Missile Crisis and the 1973 Yom Kippur War.


The Global Bipolar Disorder

The seasonal connection of mass mood swings to East-West military confrontations may be explained by a Global Bipolar Disorder hypothesis . Whether or not this hypothesis realistically explains and predicts the behavior of man as a species, i.e., human history, may be a very prescient issue.

Swings between prosperity and depression in global society, reflected as swings between mass optimism and pessimism in financial markets, e.g., bull and bear markets on Wall Street, are fundamentally symptomatic of man's manic-depressive nature. Analogous to bipolar mental patients, these swings involve the rising dominance of the left hemisphere of the brain, i.e., of the Western hemisphere of the world, during upswings. During downswings, activity in the left hemisphere collapses and the right side of the global brain, i.e., the Eastern hemisphere, becomes relatively dominant. Such hemispheric switching occurs in bipolar psychiatric patients (Pettigrew & Miller, 1998), even to the point of causing shifts between right-handedness and left-handedness with swings between mania and depression.

One should note that this analogy between man as an individual and man as a species is quite insightful given the characteristics of the bipolar hemispheres: the left side (the West) is characterized by positive mood, individuality and self-interested, analytical thinking while the right side (the East) is characterized by darker mood and collective, holistic thinking....hence the Capitalist West versus Communist East global bipolar imbalance.


Figure 43

Following an Elliott Wave Supercycle peak of man's creative mania into 1929, the subsequent cyclical collapse in mass mood involved the October '29 stock market crash, the Great Depression and the relative rise of totalitarian/collectivist powers in the East, i.e., Hitler's Germany, Mussolini's Italy, Tojo's Japan and Stalin's Russia, via the second world war. Relative Eastern dominance peaked into the early-1940s when Hitler had overrun continental Europe and the Axis powers were at their zenith of power. After that low a new Supercycle upswing in mass mood got underway involving the rise of American economic and military global supremacy. Over the last twenty years, with the seeming collapse of the Soviet Union, the dominance of the West reached a new historical extreme constituting the Grand Supercycle top identified above.

At the current juncture, following the peak in collective mood in 2007, we may be in the midst of a new long-wave collapse and associated fall of the West and rise of the East. Note that the August 2008 Beijing Olympics and a resurgent strong Russia exemplified by the August 2008 Georgian conflict occurred as the most recent downswing in mass mood got underway.

With the next major wave down in the Millenium Cycle/Grand Supercycle, will a full-scale East-West conflict occur leading to the collapse of Western Civilization as implied by the epic scale of the cycles? And if so, will such a war erupt in a seasonal fashion, e.g., into the 28th day of the 7th lunar month? If so, then in 2009, the period of greatest danger is into October 15-16....the 27th and 28th days of the 7th lunar month. (Also note that, while not discussed here, the "Spiral Calendar" developed by Chris Carolan points to potentially greater concern for a panic into October next year...although this mid-October there will be Spiral Calendar anniversaries of the 1987 top, the 2007 top and the March low this year.)


A Supernatural Warning?

One reason I suspect that the historic cyclical collapse now underway will eventually involve an East-West conflict is because, as I was learning about long-waves of history during my studies at the University of Connecticut, I had what I believe was an "apocalyptic vision" of the future that I believe was a supernatural warning as to the significance of the historical patterns I was examining. This vision consisted of two distinct parts. My first experience was seeing a special report on television of a chemical SCUD missile attack on Israel. At the time the first Gulf War was underway, so seeing such a report was not completely out of place. I was in a regular written correspondence with Robert Prechter, and I described what I had seen in the postscript of a letter I wrote to him on February 11th, 1991:

P.S. Please don't mark me off as too insane for telling you about this, but probably the strangest thing in my life happened the other night. Something I'm still at a loss to explain. I was watching T.V. by myself around 11 p.m. on Wednesday (2/6/91), just flipping through the stations, when I stopped on CNBC. The next thing I knew, Tom Brokaw was on the air saying something about a SCUD chemical attack on Israel. NBC's Haifa correspondent was on the air and Brokaw asked him about the situation. The correspondent said that a SCUD attack was underway and that chemical agents were involved. Brokaw then said something to the tune of, "well you better put your gas mask on then." In the midst of all this I was actually yelling out the door to my dormitory floor that a chemical attack on Israel was underway. I flipped the station to the normal NBC channel and the special report was still on. It then went off and regular programming continued, I immediately got up and told friends in my dorm that Israel had just been hit with chemical bombs. The next two hours I spent flipping through the stations trying to find more news. The next day I spent trying to explain what I had seen to both myself and my friends. The report never existed.

The day after mailing this letter to Prechter, I had another far more inexplicable and disturbing experience. I was with a friend who had just become interested in Nostradamus and prophecies that might connected with the Gulf War underway at the time. After showing him some books I had on Nostradamus, I began reading him the following prophecy from the eighth chapter of the Bible's Book of Revelation:

When the Lamb opened the seventh seal, (1) there was silence in heaven for about half an hour. Then I saw the seven angels who stand before God, and seven trumpets were given to them. And another angel came and stood at the altar with a golden censer; and he was given much incense to mingle with the prayers of all the saints upon the golden altar before the throne; and the smoke of the incense rose with the prayers of the saints from the hand of the angel before God. Then the angel took the censer and filled it with fire from the altar and threw it on the earth; and (2) there were peals of thunder, loud noises, flashes of lightening, and an earthquake.

Now the seven angels who had the seven trumpets made ready to blow them.

The first angel blew his trumpet, and (3) there followed hail and fire, mixed with blood, which fell on the earth; and a third of the earth was burnt up, and a third of the trees were burnt up, and all green grass was burnt up.

The second angel blew his trumpet, and (4) something like a great mountain, burning with fire, was thrown into the sea; and a third of the sea became blood, a third of the living creatures in the sea died, and a third of the ships destroyed.

The third angel blew his trumpet, and (5) a great star fell from heaven, blazing like a torch, and it fell on a third of the rivers and on the fountains of water. The name of the star is Wormwood. A third of the waters became wormwood, and many men died of the water, because it was made bitter.

The fourth angel blew his trumpet, and (6) a third of the sun was struck, and a third of the moon, and a third of the stars, so that a third of their light was darkened; a third of the day was kept from shining, and likewise a third of the night.

Then I looked, and I heard an eagle crying with a loud voice, as it flew in midheaven, "Woe, woe, woe to those who dwell on the earth, at the blasts of the other trumpets which the three angels are about to blow!" (Revelation 8)

I had long believed that this prophecy is a depiction of a future nuclear war. Even though it was written some 2000 years ago, it accurately describes each major phase of a global nuclear holocaust:

1. The half hour of "silence in heaven" during which ICBM's would traverse their orbits before striking targets after being launched.

2. The thunderous reports, bright flashes, and earthquake associated with nuclear detonations.

3. The nuclear blasts of "hail and fire, mixed with blood" followed by raging fires that would consume much of the earth.

4. The nuclear explosions, "like a great mountain, burning with fire", all over the world's seas as ports, ships, and submarines are attacked.

5. The lethal contamination of water supplies by radioactive fallout ("Wormwood") for weeks after a nuclear war. (Note that the word wormwood is capitalized in the prophecy, suggesting it refers to something specific.)

6. The blanketing of the sky by vast dust clouds after a nuclear war such that sunlight, moonlight, and starlight is obscured thereby causing a "nuclear winter".

Over the years my conviction had grown that this prophecy predicts a future nuclear war. First off, the 1986 Chernobyl disaster in the Ukraine helped reveal the truth behind the prophecy. This is because, as I later found out, the Ukrainian word for the bitter herb "wormwood", which poisons water in the seventh seal prophecy above, is "Chernobyl" (Illesh, 1987).

Upon reading this prophecy to my friend, I received supernatural validation of its meaning. Just as I began reading it, my friend and I heard an air-raid siren followed by the bellowed percussion of a nuclear explosion. The authenticity of the experience led my friend and I to rush to the sub-basement of Homer Babbidge Library . From there, I contacted the fire department to see if any sirens had been sounded and/or if there had been any sort of explosion; however, nothing of the sort occurred.

Was the future supernaturally revealed to me 18 years ago as I was learning about long waves of history?

Will the Millenium Cycle/Grand Supercycle Elliott Wave downswing eventually entail a global nuclear war?

I believe so since this clearly would entail the collapse of Western Civilization as the long-wave patterns suggest is likely in the months and years ahead.


- Conclusion -

"It would be very difficult to explain why the universe should have begun in just this way,
except as the act of a God who intended to create beings like us."
- Stephen Hawking, A Brief History of Time

In the wake of my supernatural vision of the Apocalypse, I panicked and fled UConn since, if the Gulf War at the time was going to lead to a global nuclear war, my life was in danger. Specifically, I went to St. Thomas in the Virgin Islands where my father was living at the time. This constituted a relative safe haven. A few weeks later, as the Gulf War came to an end with the U.S.-led Allied Coalition victory over Iraq, I felt safe enough to return to UConn.

Since I had left for a couple of weeks in the middle of the semester, my studies were compromised and I was in need of a credible excuse for my absence. Thus, I went to UConn's mental health clinic and described my experiences. Rather than understanding the supernatural nature of the revelation I experienced, I was diagnosed as having suffered hallucinations in the context of a manic episode due to an underlying bipolar disorder. I received a doctor's note and was permitted to reenter my studies without negative repercussions.

Recognizing that there was nothing wrong with my mental faculties and, in reality, what I experienced was a supernatural revelation, I continued my examination of long-wave patterns in human history and realized that the world was projecting on to me personally what was true of the species I was born into. Man is suffering from a bipolar disorder, not I. What's more, if my vision was an accurate premonition for human history, then man is a danger to himself and the world he inhabits. Indeed, this could prove to be a most prescient point in the near future.

So what is the solution to our species self-destructive insanity? The answer has already been provided.

During the summer of 1991 I read an interesting tidbit about the significance of birthmarks (I forget the exact book).

Dr. Ian Stevenson, a professor of psychiatry and head of the Division of Perceptual Studies at the University of Virginia, devoted a good portion of his life to the study of reincarnation. He traveled extensively for 40 years to investigate 3,000 childhood cases that suggested to him the possibility of past lives. The results of his research were presented in two major works, Children Who Remember Previous Lives: A Question of Reincarnation (1987) and Reincarnation and Biology : A Contribution to the Etiology of Birthmarks and Birth Defects (1997). The latter text highlights how birthmarks reflect how individuals died in prior lives.

In a paper, Birthmarks and Birth Defects Corresponding to Wounds on Deceased Persons, presented at the Eleventh Annual Meeting of the Society for Scientific Exploration held at Princeton University from June 11th to 13th, 1992, Dr. Stevenson offered the following thesis:

Abstract

Almost nothing is known about why pigmented birthmarks (moles or nevi) occur in particular locations of the skin. The causes of most birth defects are also unknown. About 35% of children who claim to remember previous lives have birthmarks and/or birth defects that they (or adult informants) attribute to wounds on a person whose life the child remembers. The cases of 210 such children have been investigated. The birthmarks were usually areas of hairless, puckered skin; some were areas of little or no pigmentation (hypopigmented macules); others were areas of increased pigmentation (hyperpigmented nevi). The birth defects were nearly always of rare types. In cases in which a deceased person was identified the details of whose life unmistakably matched the child's statements, a close correspondence was nearly always found between the birthmarks and/or birth defects on the child and the wounds on the deceased person. In 43 of 49 cases in which a medical document (usually a postmortem report) was obtained, it confirmed the correspondence between wounds and birthmarks (or birth defects). There is little evidence that parents and other informants imposed a false identity on the child in order to explain the child's birthmark or birth defect. Some paranormal process seems required to account for at least some of the details of these cases, including the birthmarks and birth defects.

This may be relevant with regard to my personal testimony given my birthmark:


Figure 44

Two thousand years ago Christ came to this world and was rejected....crucified on a cross. Soon thereafter, the Roman empire that had done away with the potential messiah was overrun by the power of his message and, by 1000 A.D., Christianity became the dominant paradigm for society- an historical thesis. Then came the rise of Western civilization and rapid technological development. In the context of matter/spirit duality, this epoch of materialism necessarily involved deviating from reality since, by definition, creation is a function of imagination and is driven by the pursuit of profit. Thus, over the past 1,000 years the secular worldview of science emerged in opposition to the church and Christ's worldview.

The opposing worldview that has emerged, what I refer to as the "secular paradigm", is the historical antithesis of Christianity. According to it, ours is a godless universe that started with a "Big Bang" and is flowing towards ever greater disorder and meaninglessness. This contradicts the idea that, since the moment of creation, God has carried out purposeful work to create ever greater organization and meaning. According to the secular paradigm, life is the result of a process of elimination involving "random mutation" and "natural selection". Contrariwise, Christians believe that life comes from a purposeful, orderly process of creation and divine selection. With regard to society, the secular worldview holds that, with the guidance of some imaginal "invisible hand", selfishness and competition give rise to "general equilibrium". This contradicts the Christian view that unselfish cooperation and the guidance of God bring forth social harmony.

All in all, the secular worldview that dominates today's world is the antithesis of Christ's worldview. Whereas Christ saw a harmonious universe created by God in which people must seek to cooperate and care for each other, modern man sees a chaotic, godless universe in which men create order by competing with each other and caring only about themselves. The problem is: What if Jesus told "The Truth"? Then man's current opposing worldview, the secular paradigm, is the opposite of truth, i.e., it is lies, false beliefs- popular, antichristian delusions. In this case, man, living according to a perspective that goes against reality, is doomed to commit systematic errors. Instead of bringing order to the world, he'll end up causing worse and worse disorder. Eventually his erroneous ways could end in self-destruction. Once science figured out how to split the atom, man had the ultimate means to such an irrational, suicidal End.

Assuming that Jesus did know The Truth, he correctly anticipated what man would end up doing to the world. His "rational expectations" are what Christian prophecy is all about. Thus, the fulfillment of biblical prophecy, i.e., the Apocalypse, verifies what Christ told the world some 2,000 years ago. We should accept our interdependence and love each other as Jesus loved us, lest we end up destroying ourselves. The lesson of love Christ demonstrated to the world by life example was not a suggestion for people to heed or ignore as they please. He fully understood a vital universal law, the Golden Rule, that must be obeyed so that human civilization can avoid self-destructive consequences. Rejecting the beliefs, values and way of life taught by Jesus makes about as much sense as ignoring the the law of gravity and walking off a cliff. Yet, it is just such senselessness that man is currently suffering from, thus leading to the most catastrophic error in human history: The Apocalypse.

I believe the cycles of HIStory are about to come full circle in the form of an explosive historical synthesis of East and West, Right and Left, religion and science, spiritual wisdom and material knowledge, God and man.

The bottom line is that 'rational market theory', which has effectively become faith in the 'invisible hand' of Mammon, is leading to catastrophic failure.

"No man can serve two masters.
For either he will hate the one, and love the other:
or he will sustain the one, and despise the other.
You cannot serve God and Mammon."
(Matthew 6:24)

Man has placed his faith in the wrong god, and, consequently, is facing a total upset of his irrational beliefs and expectations.

Let's hope this time around man successfully learns from his mistake so that my mission is finally accomplished.

In the knowledge that he is the coming son of man, Jesus lays hold of the wheel of the world to set it moving on that last revolution which is to bring all ordinary history to a close. It refuses to turn, and he throws himself upon it. Then it does turn and crushes him. Instead of bringing in the eschatological conditions, he has destroyed them. The wheel rolls onward, and the mangled body of the one immeasurably great man who was strong enough to think of himself as the spiritual ruler of mankind and to bend history to his purpose, is hanging upon it still. That is his victory and his reign. - Albert Schweitzer, The Psychiatric Study Of Jesus: Exposition and Criticism (1948)