Looking @ W.D. Gann – Part One

In the Introduction post to W.D. Gann we looked at his 24 Rules that he laid out in the 1900’s, we saw that they are still viable and applicable even in today’s markets (although some might require a tweak here and there).

In this post I want to focus on a few key comments Gann has made over the years and you can see for yourself how this compares to today’s life in the markets and financial world:

“The aim and object of every trader who enters Wall Street is to make money, yet it is a well-known fact that a large percentage of traders lose money.  There are many reasons for their losses.”

“During 1927, 1928 and the first half of 1929, there was much talk of a new era in the stock market and the great value of the Federal Reserve Bank in preventing panics.  Many economists, bankers, large financial operators, and businessmen said that the day had passed when there would be panics caused by money conditions such as had happened in 1907 and previous years.  At the same time these people were talking about the millennium in financial affairs and the stock market, but they seemed to have forgotten what happened in 1920 and 1921.  The decline of 1920 and 1921 following the great bull campaign of 1919 was due to ‘frozen loans’ and tight money.  The Federal Reserve Bank was in existence at that time, but that did not prevent Liberty Bonds from declining to around 85 and stocks from selling to the lowest levels on averages since 1914 before the World War began.  I quote an article which appeared on November 28, 1927, in one of our leading newspapers.  This article was headed ‘Goodbye, Business Cycle’

‘The bugaboo of a ‘business cycle’ has lost much of its terror-inspiring influence.  Scientific management seems to have overcome it.  Years ago much was herd of recurring periods of prosperity and depression, and so-called prophets of business, mostly self-styled, were wont to discourse on business cycles, to the great alarm of industry and finance.  These prophets proclaimed that business moved like the waves of the ocean and that the higher the waves the deeper the gulf between them.  They said that this was true of business, and for a long time they had the country scared to their own considerable profit from their necromancy’

‘But the spell has been broken and the pall of their prophecies has been dispelled.  Businessmen in all lines are freed of the fetish.  They realise that the ‘business cycle’ was a scarecrow.  They know that there is no occasion for such a thing if business is held to an even keel.  All that is necessary to so hold the rudder is common sense, co-operation and good judgment.  There remain a few ‘cycle’ croakers, but their throats are horse from the ineffective incantations, and business is going on in a highly prosperous way with no ‘cycle’ upheavals in lo, these many years, and with no threat of one.  Business has seen greater boom times but never was on a more substantial basis, because businessmen have learned how’

It is easy to see how confident this writer was, how he winds up his article by saying, “Business has seen greater boom times but never was on a more substantial basis, because businessmen have learned how”.  This writer was honest and conscientious; of that I have no doubt, but he was either ill-informed or incompetent.  He had not gone far enough back in the past to know history repeats in the stock market and in business

Late in the fall of 1929 the worst stock market panic in history occurred and was followed by a slump in business, thus proving the theory that cycles do repeat and while we may have been in a seeming new era, we were only repeating an old cycle or condition which always follows years after wars.

 So we can see back in the 1920’s Gann was aware of the business cycle, Human emotion and influence as well as the Fed’s and media failing to grasp how markets work.

The words of W.D. Gann above have a profound and deep association with events in the markets from 1999!  This is why I place little value of media or government speculation about the economy, markets and the future direction of the markets in their opinions!

If you care to review history and panics, market down turns etc you will see that this happens all the time with reactionary (not preventative) measures taken by governments and the media fall for the rhetoric – hence why I tend to ignore media commentary on the markets.

Recently in the UK we’ve had an Ex-Prime Minister declare (when he was Chancellor of the Exchequer) that he’d banished the boom ‘n’ bust cycle! – Only for the markets to have a major bust!

I keep mentioning in various places that Governments and Central banks cannot control economies and growth – they never have been able to and never will, Gann helps prove this fact with his observations a century ago.

W.D. Gann’s quotes from “Wall Street Stock Selector”

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