This paper appeared in the journal Technological Forecasting & Social Change:
Sunspots, GDP and the stock market (View paper PDF)
by: Theodore Modis
Abstract
A correlation has been observed between the US GDP and the number of sunspots as well as between the Dow Jones Industrial Average and the number of sunspots. The data cover 80 years of history. The observed correlations permit forecasts for the GDP and for the stock market in America with a future horizon of 10 years. Both being above their long-term trend they are forecasted to go over a peak around Jun-2008.
The paper concludes:
…..If one accepts that there must be some correlation between GDP growth and stock-market growth as displayed in Fig. 5, then one cannot use the lack of scientific proof as an argument against the existence of correlation between the stock market and sunspots (Fig. 2), or between GDP and sunspots (Fig. 4). On the other hand, if these correlations are real, then we can venture long-range forecasts for the DJIA and the GDP….
….The levels forecasted here for the DJIA of 13908 in mid 2008 and 7919 in early 2014….
While there may be some correlation between sunspots and the DJIA and GDP, there’s also much larger drivers, such as panic and bad loans in the banking industry. Sir William Herschel discovered a correlation between wheat prices and sunspots. In 1801 he published two papers that, in part because of Herschel’s reputation as England’s “Kings Astronmer”, effectively launched the field of solar influences on Earth’s weather. It is in the first of these papers that Herschel discusses an anticorrelation between the price of wheat and the number of sunspots visible on the Sun.
So, I suppose DJIA/GDP links aren’t that far fetched. I remember well when Carl Sagan said in his famous 1980’s PBS special COSMOS that “we are all made of star-stuff”. Thus is doesn’t seem that unplausible that the ebb and flow of our existence continues to be linked to our nearest star.
h/t to Paul Biggs
This recent work shows no link between methane and human activity
http://www.tgdaily.com/html_tmp/content-view-39973-113.html
This is really one huge nail in the coffin of AGW
Roy, I think this is published as a lighthearted whimsy.
BTW There are two small sunspots, 1007.
To Leif Svalgaard (11:25:45),
Would there be an advantage in measuring the sunspot area instead of the number of sunspots?
ANTHONY
Another interesting table. I hope you can reproduce this ?
RECESSIONS AND SOLAR CYCLEC
SOLAR CYCLE MAJOR
PEAK PERIOD SOLAR RECESSIONS
YEARS MAX YEARS
YEAR
1904-1909 1905 1902-1904
1916-1919 1917 1918-1919
1926-1929 1928 1929-1933
1937-1939 1937 1937-1938
1947-1949 1947 1945-1947,1949
1953-1954
1956-1960 1957 1957-1958,1960
1960 not true recess.
1968-1970 1968 1969-1970,1974-1975
1979-1982 1979 1980,1981-1982 ,
1989-1991 1989 1990-1991
2000-2002 2000 2001
2009-2012 est 2010 estimate 2008- 2010 est
I think we should send all this data to Michael Mann and get him to produce another hockey stick. You know the one – the DJIA causes an increase in sunspots which leads to global warming. Al Gore can then make another movie blaming the (man made) DJIA for all the woes of the planet and governments can introduce a new punitive tax on the DJIA to keep it low and reduce sunspots. If the DJIA is doing all this to us we have just got to fix it and a tax will be a good way to start.
Leif Svalgaard (09:09:34) :
“Perhaps I should ask for their help instead in predicting solar activity…”
I predict that the Sun’s behavior will continue to be controlled by the Natural Laws of the Universe until….
I hope this has been of some help. I have not used a computer model to make this prediction and therefore the prediction is subject to human error and not subject to erroneous data input or computer error. 🙂
ANTHONY
I have simplified the table to show only the SOLAR CYCLE PEAK PERIOD YEARS followed by the US RECESSION YEARS [MAJOR]. There seems to be an approx. 10-11 year cycle for both? Similar to the business cycle that economists talk about?
SOLAR
CYCLE
PEAK
PERIOD[RECESSION
YEARS]
1904-1909 [1902-1904]
1916-1919 [1918-1919]
1926-1929 [1929-1933]
1937-1939 [1937-1938]
1947-1949 [1945-1947,1949]
1956-1960 [1957-1958, 1960]
1968-1970 [1969-1970]
1979-1982 [1980,1981-1982]
1989-1991 [1990-1991]
2000-2002 [2001]
2011-2012 [FUT?]
OT. Updated Central England Temperature. October anomaly almost 1 degree C down. http://hadobs.metoffice.com/hadcet/cet_info_mean.html
This is not as outlandish as it may sound.
Markets are driven by sentiment – optimism versus pessimism to you and I. To a degree the sentiment is driven by real economic factors, but to a significant extent it has no rational basis.
Not only does sentiment drive the markets, it also drives the real economy, which in turn drives the markets. More pessimism = less investment and consumer purchasing.
We know the weather affects peoples moods by a substantial amount. Suicide rates go up with rain and cold weather and fall when it’s sunny.
All that’s needed is a mechanism for solar cycles to effect the weather – Svensmark’s clouds? – and we have a causal mechanism for sunspots influencing the DJIA.
The logic behind the sun activity and the effect of the harvest on the economy and market confidence makes sense but… more and more farmers are using greenhouses to grow food. Wouldn’t the effect of the sun on the business cycle get smaller and smaller? And, talking about greenhouses… if it was a fact that CO2 is heating up the planet, according to IPCC’s science the sun should not have any impact on the GDP… only if you heavily modify the above graph (and getting a hockey stick in there) and add in insanely high forcing factor , that could maybe make it all plausible.
Perhaps an even more fascinating study can be seen here in,
Juckett, D.A., Rosenberg, B (1993). Correlation of human longevity oscillations with sunspot cycles. Radiat, Res. 133 (3). 312-320. After reading this paper, posters can try to see how long they have!
Another. A brief story about the sun;
>>>>The encroaching winter means less power is Phoenix’s solar panels<<<<
http://www.marssociety.org/portal/mars-news-from-the-san-diego-chapter/TMSSD_News_42612
FM
Meanwhile the latest from the UK govenment (if you really want to laugh…or cry with us)
Pet owners face code of practice
http://news.bbc.co.uk/1/hi/uk_politics/7708411.stm
The best bit is the comments at the bottom.
Sort of reminds me of my friend in college who made a Hertz to Cycles/Second conversion graph (on log paper) and handed it in to his physics prof asking for extra credit. As I recall, he did not get any 🙂
Ray,
Greenhouses do not work for grains and grass because of scale, the latter fuel our protein sources and the former fuel people. All our grains are grasses and it takes a lot of solar energy, proper growing season, and the right temps to make a lot of grass.
In developing economies, ag production trumps ALL other things. And the developed economies are tied to the non-developed ones.
Marginal supply and marginal demand set prices and determine the future of economies, both developed and not. Change at the margin redistributes resources and this drives margins elsewhere.
Ray, high(er) value crops are grown in greenhouses. Florida tomato growers are being put out of business by competition from Mexican tomatoes.
F Rasmin (14:50:40) :
Perhaps an even more fascinating study can be seen here in,
Juckett, D.A., Rosenberg, B (1993). Correlation of human longevity oscillations with sunspot cycles. Radiat, Res. 133 (3). 312-320. After reading this paper, posters can try to see how long they have!
OMG!!
I died 2 weeks ago!!
DaveE.
It’s interesting to see how people who are clearly very open-minded when it comes to departing from the consensus in one domain may not initially be receptive to the possibility of surprising findings in another domain.
Jevons, despite being one of the three inventors of marginal utility, a foundation of modern economics, was roundly laughed at for his theories of a link between sunspots and the business cycle. He certainly failed to establish the right kind of connection between sunspots and crop prices (his initial idea of a possible causal link), but subsequent researchers Garcia-Matta and Shaffner published a paper in the Quarterly Journal of Economics (1934) confirming the link between business and sunspot cycles (although it seems agriculture had nothing to do with it).
Mor recently, the Foundation for the Study of Cycles (established by Edward Dewey, amongst others) has regularly published research since the 50s on the relationship between life on earth and solar/terrestrial geomagnetic phenomena. One of their stranger findings is that via some kind of entrainment, cycles of similar periodicity turn together regardless of whether there is an obvious causal link between the phenomena.
I trained as an economist and have been a macroeconomic investor for some years now, and you would be shocked at the number of serious people deploying considerable capital who pay at least some attention to this kind of work. Of course they are not on CNBC shooting their mouths off – investors tend to be a conservative bunch, and why give away an edge in such a competitive world. Those who know generally don’t talk very much. But you’ll notice one or two people dropping hints – Jim Simmons, Robert Prechter, Marc Faber and Hugh Hendry amongst others.
The root problem is that although with experience one can identify pricings that are out of line with respect to the fundamentals, identifying the timing is tough. The most important variable in figuring out asset markets and the economy is the state of animal spirits; economists have thrown up their hands at the idea of developing a theory of irrationality and so it is not surprising their forecasts are universally horrible over time.
The thing is that just because the state of confidence does not suit itself to analysis via traditional tools does not mean that it is completely random and that it is not susceptible to understanding and prediction via other techniques. In my view solar activity does exert a profound influence on animal spirits/irrational exuberance and thus on the economy and asset markets. Panics and credit cycles are just some of the ways that these swings in animal spirits can manifest in human behaviour.
So feel free to laugh at this stuff. I really don’t care. Luckily in my field one doesn’t need to persuade others of the truth of a theory to be effective and successful. But you’re throwing away the opportunity to deepen your understanding of the universe as well as the economy and financial markets.
Someone said:
“Correlation isnt necessarily causation” and is true. But as investment manager I dont care what is the cause but only profiting with the facts. And in fact, even looking to PLs, as another one said early, I notice this year to interestings things. The majors pullbacks in DJIA that we had this year coincides with sunspots and the lack of that fenomenum, sunspots, coincides with the fall of the markets. As I learned with my experience, I dont care the nature of the method that I use to invest, as the profits come with.
This year, one of worst years in my career, because the volatility, I saved my portfolio using… The lack of sunspots. And I profited with them when they came. At this moment, for example, I have 90% of allocation in long stocks because… I notice sunspots in the picture. 😉 After that sunpot vanishes I will hedge with short postions. 🙂
I dont care what the academics learn and teach at business schools. What they learn and teach in their books. I only want to use things that is working well with good risk control and management. And this year is working well. I check every day this blog ( Thanks Anthony) the sun. And every day give me one more insigth about tomorrows action in the markets.
Looks bizarre? Perhaps. Is the same bizarre that people uses PLs and balance sheets and they dont understand nothing when the market doesnt follow that beautiful numbers in the balance sheets. Or that managers that uses a lot of mamboo jamboo that they call Financial Calculus and they loose their hair in the market or they are underperformers.
I use everything to invest in the market. Everything. Sunspots, moon phases (I use an alternative method of displaying mensal bars with the moon phases thar are very interesting ;-)), mason geometry, etc. And, yes, I use also Balance Sheets, macroeconomic data and, of course, Financial Calculus. But, to survive, during my career, I never said No to using “esotheric” methods or bizarre technics to perform in the market. Im happy to know that a lot of suckers only uses conventional methodes. They loose and I won. The game is negative sum, isnt that so? ahhahahahah
Kind regards,
Kom
With the coming global cooling, we should invest in grains… their price will soar as the demand will increase and the production will drop.
This is brilliant! I love it. There is also a correlation between my bowel movements and the DJIA 😀
I wrote about this exact topic when I was going to school for my econ major. I guarantee you that people are reading this blog right now and believing that we need to alter the sun spots so that we can protect our economy!
Here’s something else to ponder… Before the DJIA was created, was the sun producing any sun spots!!?!! LOL
lol, nice one
Mark (12:29:03) :
Would there be an advantage in measuring the sunspot area instead of the number of sunspots?
Not really. We actually measure both. One can generally compute one from the other. The conversion formula is R = q * A^0.775, where R is sunspot number and A is sunspot area [in millionth of the disk] and q at present is 0.35 . Before 1946, the constant q was lower, 0.30.
Kom drop me an email – heraclituso at gmail.com