Kondratieff was a Russian economist who argued that there was a long sine wave cycle in the economy lasting around 60 years broken down into 4 seasons each lasting around 15 years. There proposed reason for the cycle is…. other cycles. In other words, cycles of demographics, credit cycles, capital investment cycles and more, generate these long repetitions over time. Clearly that’s slightly unsatisfactory, unless we can explain the cycles of the source phenomena. Today, I am going to argue that Kondratieff cycling actually reflects solar cycling.
Here is the Kondratieff cycle and its subseasons:
Source: The Long Wave Analyst
We should be in a K-winter since around 2000, with gold and treasuries king. With both gold and treasuries having performed handsomely over the last decade and recently reached all time nominal highs, evidence is supportive.
The general theme of the K-winter should be deflation and cleansing. When Kondratieff wrote his theory, central banks did not have the freedom they have now to counter-attack with intervention and monetary inflation. Using Shadowstats data, we can see that the results of their actions in the US: high price inflation rather than deflation.
Source: Dshort
However, when US GDP is netted of this inflation, we can see that the K-winter appears to have fulfilled: a period of shrinkage, or cleansing.
Source: Dshort
We can measure this another way: stocks have tracked overall sideways since 2000 but when adjusted for inflation have significantly dropped. This is reflected in price/earnings ratios gradually falling since 2000 by more than half.
There has been a lot of debate about which of the two ‘flations is and has been occurring over this last decade, and it’s understandable. There has been major monetary inflation, and this has resulted in significant price inflation particularly in hard assets such as commodities. Yet, there have been characteristics of deflation: real economy shrinkage, a decline in money velocity (cash hoarding), debt deflation (in households and companies), and liquidity traps.
I suggest that some kind of K-winter has indeed been playing out since 2000 as per the theory, and that governments have been unable to prevent that, but they have been able to prevent a social-conflict-inducing depression by tinkering in the economy with what they can (rate cuts, bailouts, money supply increase, balance sheet expansion). The result is two-fold: (i) in nominal terms the economy and asset prices have held up because inflation has offset real declines (a popular illusion) and (ii) a lighter rather than deeper cleansing has been possible in the economy and assets because public balance sheets have been expanded to simply transfer some of the previous excesses rather than purging them. There is no magic to the public balance sheet expansion: this is simply prosperity taken from the future.
So, central bank large-scale intervention in a ‘natural’ period of cleansing (following the excesses of the 1980s and 1990s) has changed the parameters understood by Kondratieff. The result of pushing easy money onto an economy in cleansing is a series of speculative bubbles from real estate to oil to agriculture to bonds to precious metals to equities. Over the last decade we have seen them take turns in making parabolic rises. Be aware though that much of this action is in nominal terms, i.e. net of inflation the gains are much less impressive. Nevertheless, if Kondratieff theory is valid, then our current K-winter is as much dominated by assets that perform well under inflation, such as commodities, equities and real estate, as dominated by gold and bonds as safe havens.
What if there is a K-winter finale ahead, in which outright deflation reasserts itself and just gold and bonds rise (perhaps in a parabolic)? Those who advocate that we are tumbling into recession currently and that this will reveal central banks to be powerless (given rates at zero and stimulus back on) could perhaps buy into that scenario. Let’s compare the last K-winter and see if this happened.
The last K-winter was the late 1930s and the 1940s. As now, equities were in a secular bear market, economies were in trouble following the excesses of the preceding decades. The world war pushed debt to high levels and so governments had to keep rates low. Inflation was problematic accordingly, and we saw a similar inflation/deflation mix to the current K-winter, in that economies shrank but assets such as commodities performed well due to easy conditions. The K-winter did not draw to a close with a deflationary assertion and a huge money flow into just bonds/precious metals and out of pro-risk, but rather a general commodities peak and associated inflation peak in 1947, followed by a gentle coiling of equities and then true secular equities bull momentum as of 1949.
I have maintained that the 1940s is our closest mirror to our current period since 2000, due to the secular commodities bull and secular stocks bear, the combination of ultra low rates and problematic inflation, and by solar cycle timing. The Kondratieff cycle would calculate this too, as it was the last comparable K Winter season. So let me now draw together solar/secular cycling and Kondratieff cycling (click to enlarge):
This diagram is an idealised cycles model, all based around solar. In my previous work I have demonstrated that solar peaks occur roughly every 11 years and that secular peaks in equities and commodities occur close to solar peaks. There is a sine wave in long term real stocks and an opposite-polarity sine wave in long term real commodities, both which have around a 33 year (equivalent to 3 solar cycles or 1 lunisolar cycle) duration, as shown in the charts below. Treasuries (or inverse rates/yields) move in around a 66 year cycle (2 lunisolar cycles) with peaks and troughs converging with secular commodities peaks. The result is we see two different kinds of secular commodities bulls: one set against rates moving to a peak, and one set against rates moving to nothing.
I believe that idealised combined cycles model fits very well with Kondratieff theory. The only adjustments I have made were to slightly shorten the summer and winter seasons by slightly extending the spring and autumn seasons, which doesn’t stray too far from his time ranges for the seasons. The combined model does suggest that there are differences between our current period and the 1970s or 1910s, which were both previous secular commodities bulls and secular stocks bears. They were K-summers where inflation was the only ‘flation in town, whereas today’s K-winter and the 1940s K-winter both had elements of inflation and deflation: a natural deflationary cycle offset by inflationary central bank actions. Regardless, the K-summers and K-winters ended in a similar way: with an inflationary peak and a general commodities peak, and a range-trading for equities.
Picture the current K-winter without central bank intervention. A deflationary depression would likely have occurred. Unemployment and defaults would have been much more severe, cleansing much deeper. Social conflict would likely have been much greater. But the natural process of cleansing would have given way to a new cycle of growth ahead in the same way with or without intervention. What the intervention has done is make the K-winter process less severe all round by some can-kicking (a lot of the ‘bad’ has been absorbed into new public debt, which will have to be paid for at some point, but not now). By keeping rates ultra low and bailing out companies and countries that could have had much wider impacts we are moving towards that new K-spring and cycle of growth with a significant helping hand (putting future generation implications aside).
I suggest that Kondratieff found evidence of cycles that were actually approximations of solar cycles. In other words, he uncovered repetitions in time in the economy and financial markets that ultimately are caused by the sun’s cycle of activity and its influence on humans. The long term sine wave to which he refers is apparent on my charts above for real equities and real commodities due to the speculative pulls into the solar peaks, and there is a similar relation with treasuries/rates. The idealised model that I have produced shows that the relations between these 3 asset classes and solar peaks produces one 66-year cycle within which there are 4 different periods, as the different assets are pulled to the solar peaks with different frequencies and alternations. These four periods fit very well with Kondratieff’s seasons by their characteristics, and the whole cycle likewise. I believe that a few tweaks are needed to K-theory to make it more accurate: the two shorter and two longer seasons per my model, and the K-winter now featuring central bank intervention and a mix of inflationary characteristics as well as deflationary (with associated implications for hard assets).
S O L A R C Y C L E S 
If anybody is interested, Long Wave has some videos on the long cycle.
http://www.longwavegroup.com/video/video.php
In the fifth chapter on Longwave principle, Ian Gordon seems quite overly bearish on stocks, I think he said he thought an ultimate stocks bear market low for the S&P500 would be about 100 points, which would require a Great Depressions style crash.
John has said, and as history points out generally, there aren’t more than 2 major crashes in a stocks bear. We had the Dotcom crash in the 2000s and the 2008 crash, it seems to stretch credibility that there would be a mother of all crashes to take stocks 90% lower from their current levels in the near future.
He’s spot on about gold and gold stocks being the best performer in the K-Winter though, so most of what he says makes sense apart from his commentary on stocks. Thanks for sharing the link, all the same
Per the regression to the mean chart in the article, 1000 on the Dow appears posssible.
spx at 100?? Wouldn’t you need to adjust price to reflect the lower value of the dollar?
EWI has been calling for DOW below 1000, based on wave structure (their interpretation, and they’ve been bearish since the early 1990’s, so take it with a grain of salt!). But what I see is that even if stocks were to decline to price levels of some prior wave, they are not adjusting for the change in the value of the dollar. If you make that adjustment, the decline into the 2009 low actually satisfied their price target.
More excellent analysis John…worthy of posting on marketoracle IMHO.
Thanks for sharing.
Hi TDL, and thanks
All models updated. Lunar turns have been working well lately. Geomagnetism is unseasonally tame for Sept and Oct (forecast) which is supportive for the markets. The SP500 continues its notable divergence.
John, as you note, the lunar turns have been working recently. Any thoughts on, one, the Carolan panic window which opens mid-month, or two, the eclipses coming in November? The eclipses earlier this year presented an inversion followed by a significant change in trend. Could the November eclipses provide a similar inversion and reverse trend change and, if so, would this tie in with an equities top according to the SIDC spring solar max peak?
Hi Marlowe. What is the Carolan panic window? This is how I see it: we should have positive pressure for the next 2 weeks as we rise up to the new moon and on low forecast geomagnetism. Looking further out, yes there is a solar eclipse mid November and then a lunar eclipse combined with a full moon 28th November, and that makes for a Puetz crash window in December. There is also the last major Bradley turn of the year 22 Dec. So you could make a case based on those for a crash to a bottom 22 Dec maybe. However, seasonality is particularly positive in December, and both Puetz crash windows and Bradley are as much miss as hit. So for myself, I don’t give them much weighting, more of an awareness. I will just continue with my lunar phase timing – considering selling into a new moon and any buying just after the full moon.
great post for its clarity and clarity of purpose..
Thanks
Long term bottoms are characterized by major stock indices having a pe of 6, a yield of 6%, and selling at or below book value. We are not even close. The question is will it happen again? Based on the Kondratieff Wave, I wrote an article in 1980 (rates were over 15%) stating that interest rates should go back to zero. Nobody, including me, believed it but it has happened. We are at or very near such a turning point. But earnings and stocks are going to have to be cut in half again very soon.
As a comparison from the 1966 top the mkt fell 40% in 9 months. Then it rallied to a double top and fell about 33%. After a rally back to a triple top in 1972, it fell by 46%. From the 2000 top, the mkt fell 38%. Then from the next top (2007), it fell over 50%. So I think a minimum of over 30% and probably a lot more over the next two years.
How about 1929. The crash of 1929 was 50% in about 3 months. In round numbers it fell from 400 to 200. By April 1930 it rallied back to 300. Then it started a gut renching 90% drop to 40 in 1932. A 5 year rally of 500% took the mkt back to 200 or to 50% of the 1929 high. Then the mkt fell by 50% to 95 in Apr 1942. A rally to a high of 213 in 1946 started. The next bear was only 20% and the bull was really underway.
My overall point is several 30% to 50% drops and 100% recoveries can happen over the next few years.
The secular top was 1968, not 1966, which reduces the big falls count to 2. We are in 1979 by secular and solar mirroring.
The comparable period in the 30s was roughly 1938 to 1947 (commodities secular bull, stocks secular bear). 1927-1932 was a major greed and major fear episode within the stocks secular bull of that time – the market went to 3 times its start point down to a third of its start point, before returning to trend.
Hi John,
Great article, as always. here is my view:
I do not follow the theory of how you line up your tops and bottoms, nor do I follow the theory of bail outs / can kicking fixing the Kondratiev Winter and finally I disagree with shadow stats data to a certain degree. Let me explain all three views I personally hold, wrong or right:
For me the real tops were in price, not in sun spots or other indicators. When the price is at its highest and speculation mania at its strongest, after being adjusted for inflation, that is the real peak. Therefore, I personally use 1906, 1929 and 1966 as true peaks. If you use that theory, than all secular bear markets have between 3 to 4 major sell offs of more than 20%.
Deflationary bear markets during K winter tend to be the strongest, like we saw in the 1930s/40s period, and we are seeing again over the last period. Just because Kondratiev created his theory when central banks weren’t as agrressive as today, doesn’t mean central banks can “change” a capitalism cycle. Haven’t you heard the saying that markets are much stronger than central banks?
Well if you believe that, you should also know that bail outs and can kicking is only a short term bandaid fix and K winter will not be over until we have some type of resolution in Europe’s banking system and most likely another default.
I’m not looking at targets Ian Gordon or Robert Prechter or Albert Edwards or David Rosenberg or Hugh Hendry are looking it (very smart people mind you). They all believe Dow will go to 1000 or that VIX will jump to 80 again. So say that does happen for the sake of the argument, majority if not all of the global banks, pension funds and other financial insinuations will be insolvent and bankrupt. The whole world would be in either Dark Ages or at war if Dow reached 1,000. This is their forecast of what a true winter looks like.
My view is one more cyclical bear market of 20% or more. It might be 20% and mild or it might be 40% and strong sell off, but my view, like yours, is that March 2009 nominal low will not be taken out. We will see what happens, but one thing is for sure, Dow Gold ratio will go very low and as recently as August everything was very bearish on Gold and as recently as today every is super bullish and complcent on stocks (AAII does not really measure true sentiment).
Therefore, in my mind it makes sense top air trade long Gold short stocks for the final ratio of very low profitable outcome. Furthermore, being short stocks gives you a hedge to the downside, if Gold doesn’t rally and it all goes to hell, like some of these super bears are predicting. I have never had a portfolio with only longs. I have always held some longs and some shorts and that balance has always worked out well, as your shorts in some asset classes can always protect you from some longs in other assets. Diversification is a very good nicest meant tool in K winter.
Finally, i just like to say that there is no way that inflation adjusted GDP with shadow stats data has been running at -10% on yearly basis. That is just ludacris. I receive and read Marc Fabers newsletters every month and he talked about that before, as he lived and worked throughout that period. He argues that recessions of the 1974 and 1980/81 were much more serve and much depper, than recession of 2008. He says that the feeling was one of true economic dispear back than and that was K Summer, where economy is the strongest.
So how can we have K Winter with the argument that inflation adjusted GDP has been below 10% year after year after year according to shadow stats? If that was happening in the US, we would have had riots every year worse than Greece. When I go to London or Paris, visit LA or New York, or go to Tokyo, Singapore or HK, people live amazingly well there. I tell you, it’s nowhere near a depression and there is plenty of spending power sloshing around like 2008 never happened. Hotel occupancy rates and airlines are packed and jammed like sardines. If K Winter ends with depeair, where majority give up and lose hope, it is hard to see it really.
Nevertheless, I’m not forecasting permanent bear gloom and doom, end of the world type scenario. Just another healthy bear market in equities and a spike in PMs. Than ill invest in stocks for the K Spring…
Finally, I forgot to add that end of K winter finishes with overall debt levels coming back to a more normalised levels. Currently, public debt everywhere is rising and therefore overall debt is rising, because majority of the private debt was never written off. It was transferred to the public sector.
So is this the first K winter when debt to GDP above 90% in all G7 will not go down? Reinhardt and Rogoff have shown that when you reach this type of a debt level, growth becomes anaemic at best. That does mean, because we never really wrote off majority of the debt, we borrowed growth from the future? if so, what will the K Spring look like?
I hardly doubt that central banks have so much power as to ultimately intervene and change the course of human society and its cycles, which held for 100s of years. With the biggest debt levels in 2000/2007 and most overvalued stock market in 2000, I have to admit that so far has been be mildest and weakest K Winter ever.
Thanks Tiho. We’ve long been in agreement about being a secular stocks bear since 2000. Based on nominal price only that would be since 2007 as the price high in 2007 exceeded 2000. So we can look to inflation adjusted price, price earnings valuations and relative asset performance for more compelling evidence. The SP500 forward p/e at the 2000 peak was 25.6, at the 2007 peak 15.2 and currently 12.9, so we can see the secular bear at work.
In the 1960s, I take it you are using the Dow, which made a high 10 points higher in 1966 to 1968, However, the SP500 nominal peak in 1968 was 25% higher than in 1966, so combining the two the nominal peak was 1968. The Sp500 made a higher high in 1973 (like in 2007) but the p/e had dropped from 22 (1968 peak) to 18 (1973 peak), again making the secular bear clear.
I concur with the 1906 secular top. 1929 I don’t concur and that’s the one I have to be most convincing on. I explained already that it differed in that it was a major greed then major fear episode that effectively cancelled each other out. By including relative asset performance in the picture, the other periods we are quoting: the 1900s, 1970s, 2000s all coincided with secular commodities bull markets. The secular stocks tops in 1906, 1968 and 2000 all were the secular commodities bulls starts. 1929 was not, as you can see from the long term corn price chart here: https://solarcycles.files.wordpress.com/2012/03/13mar3.png
The secular commodities bull began in the 1938, by my reckoning,
When solar cycles are added, the picture becomes even clearer. Clearly it’s your perogative to ignore them, but it is the crucial piece that unites the analysis.
If we consider the 1940s the last comparable K-winter, then overall debt did not come back to normal levels towards its end, as you suggest. The K-winter ended in 1947 with the secular commodities peak and that was actually the peak in public debt (US). The debt then gradually reduced all the way down to the 1970s, as real growth together with inflation enabled it to be gradually shrunk. Sure, the levels of debt present a challenge going forward, and hence I expect permanently ratcheted higher levels of inflation to assist with it. But parabolic technological evolution should provide the genuine growth that stops central banks having to expand their balance sheets like in the last few years, and starts to reverse the trend.
The last K-Winter had bouts of great inflation too, so this current period isn’t unique. In the early 1940s, inflation soared, as industrial production of weaponry increased. There was only a deflationary period after the war ended, and a recession began around 1946 onwards.
Interest rates could spend until 2020 at record lows. One thing that interested me was the random tightening of monetary policy by the ECB in mid 2011. My guess is that the current recession is driven by last year’s raising of ECB interest rates.
Western economies are still so fragile that a slight rise in interest rates causes a new recession. Something I’d like to know is whether we are heading towards another era of stagflation by the 2040s or if interest rates will rise slightly in the short term but then stabilize from then on.
Always enjoy your comments Pete
Something I don’t understand is the shadowstats GDP figures. If there had been a slump, with 10% contractions in GDP for over a decade, we would have felt it by now. The boom preceding the financial crisis wouldn’t have happened during this sort of slump, so I find the shadowstats data on GDP questionable.
Yes, I’ve said before that I believe the reality lies between the official inflation stats and Shadowstats but nearer Shadowstats. I too doubt the consecutive -10%s, but the key point is negative ‘real’ growth.
The Carolan panic window refers to a paper written by Christopher Carolan, where he argues that major financial panics (e.g. 1929, 1987) have frequently occurred around the 28th day of the 7th month of the lunar calendar. As he puts it:
“this author demonstrated how the panic dates of “Black Tuesday,” October 29,
1929, and “Black Monday,” October 19, 1987 occurred on the same annual lunar calendar date, 7-28.”
His paper is available here and seems pretty solid:
Click to access 1998DowAward.pdf
Thanks Rob. Do you know the date it falls this year then?
OK, I’ve read that the 7th lunar month of 2012 ran from Aug 17 to Sept 15 this year, which would mean the crash window already happened. Yet Marlowe seems to be suggesting it is ahead.
Carloan begins his lunar count with the first new moon following the spring equinox, which would be April 7 (day 1-1) this year. The panic dates are 7-27 and 7-28 which marketwise probably equates to Fri Oct 26, not mid-month as previously suggested (got my new and full moons mixed up in my original count).
I don’t buy into the Carolan autumn crash window simply because we don’t have a crash every year. My calculation using GMT has 1-1 as the new moon on 22/3/12 as vernal equinox was 20/3/12. Counting on 7 lunar months and 27/28 days puts us at 12/10/12 as someone mentioned.
What is interesting is that a 6 week Puetz crash window runs from 15 Oct 12 (new moon before solar eclipse) to 28 Nov 12 (lunar eclipse) and this spans the US election with all the uncertainty that that brings.
My own (unproven) view is that the Carolan window coincides with Puetz occassionally and the eclipse cycle is more important as Puetz demonstrates than normal new/full moons.
Thanks for your reply John. I have a few charts to put forward which do not link towards your view:
1. Total Debt is not only Public Debt, which did skyrocket into WW2. The fact is that Total Debt as a % of US GDP started to decline in 1933 as stocks, GDP and depression bottomed. Ray Dalio’s chart from his newsletter proves this very easily and simply (click here). You will notice that by 1950, Total Debt levels fell back to 1921 levels. This is what K Winter does or at least this is what it is meant to do, but today we have not seen anything dramatic in Total Debt reduction. All we have seen is can kicking, bailouts and wealth transfers… none of them actually solving the problem of too much debt. In K Winter, you are meant to reduce debt and solving debt with bailouts (more debt) doesn’t solve anything. By the way, for those not familiar with Total Debt, it is consumer, corporate and public debt in one.
2. Regarding the peak in 1966 and the peak in 2000, I am not looking at Dow Jones, with its new nominal high in 2007. I am looking at the S&P 500, inflation adjusted (chart here). S&P 500 peaked in 1966 real prices (inflation adjusted) and it never made a higher high. Same is true of 1906 peak and 1929 peak and 2000 peak. They all line up perfectly, despite Dow Jones making new highs in 2007. Dow has only 30 stocks and S&P has 500 stocks. S&P 100, represents this picture even better.
Anyway, let me know what you think of these points, especially the one regarding debt levels not being reduced at all, unlike the 1930s/1940s K winter, when Total Debt and de-leverging fell dramatically, despite the rise of Public Debt due to WW2.
Also I forgot to add that debt levels usually rise dramatically during K Autumn. This is what happened in the K Autumn of 1921-1929, when Total Debt went up dramatically. When GDP fell into 1933, Debt to GDP ratio when up even higher,
This is also what happened in K Autumn of 1982-2000 when Total Debt went up to even higher levels than pre-Depression. Than Greenspan / Bernanke combo forced speculators into the housing market and the Total Debt went up even higher into 2007, but the GDP did not rise as much, the ratio hit new highs.
Staggering heights of debt occurred during the recent K Autumn and it has not been de-leveraged and staggering overvaluation occurred in the stock market and it still hasn’t returned to “dirt cheap” value of despair and hesitation. Surely you don’t believe in can kicking as the ultimate solution, do you?
On CNBC and Bloomberg, constantly market pundits tell us how stocks are the best asset or most attractive asset vs bonds and cash. Constantly people remain bullish on stocks long term including all the largest mutual funds like Larry Fink of Blackrock and Bill Gross of PIMCO plus many many many other fund managers.
The two best bloggers around debating the big picture. Just excellent.
A couple of points to consider. K-Waves suffer from a pretty limited amount of reliable data. Kind of like global warming, the story makes sense but we have a very narrow perspective on what is a very long history. The lack of debt repudiation and outright deleveraging is a huge fly in the ointment of a K-Spring right here. Notably, the 1930’s chart peak occurred as household net worth dropped precipitously through a combination of declining asset values and households consuming savings as jobs and income were lost. Much of the deleveraging happened as debts were written off through bankruptcy. In the current instance, that has largely not happened at any level, be it household, corporate or government. For all the talk of home foreclosures, those underwater mortgages are still out there on the books.
Concurrently, we have a lack of sustained deep value in a wide variety of asset markets, most notably equities. Yes, the PE has come down indicating the work of a secular bear phase but a significant component of that has been a massive increase in profit margins. A return to an inflationary environment won’t help the PE cause as inflation typically impairs profit margins as price increases at the wholesale level don’t pass as easily to the retail level. Wages are typically the last “price” to rise and incomes lag inflation. Generally speaking, inflation is economically disruptive.
I’m glad you both are in agreement that there is room for another downturn in the next 1-3 years. We can see how that plays out and what kind of clarity it provides to the picture.
John, Is it possible that this cycle could run longer and create a true winter that purges the debt books while accommodating your solar work?
Many thanks to both of you for the excellent work.
Thanks OneFive. Japan is an example where the debt wasn’t purged and the result is well known: a much longer period of deflation, low rates, poor stocks and real estate performance. There are countries with debt to GDP multiples and there are those with very healthy balance sheets, so looking forward with a global view I would expect a normal K-Spring, but within that there could be problem countries amongst the indebted. But I don’t expect debt default, debt restructuring or other ‘solutions’, but rather a mess gradually becoming less messy.
In terms of solar timings, everything pushed out by a year would still be within the range, but not beyond that. I concur with what you say about the narrow data – all the solar/secular cycle forecasts are usually based on 3 good historical comparisons. Which is why the developments over the next 2 years are going to be so interesting. An additional series of developments in line with the rest would really shore up the theory. It is also why I take things one step at a time, continually reviewing the shorter term for evidence that it’s all playing out as forecast – or otherwise.
Also here is the chart of US Household Debt as a % of Net Worth, with extra editing by me relative to the Kondratiev Wave cycles. That might be helpful to a lot of readers here.
OK, thanks.
I can’t click your inflation adjusted SP500 link, but here’s another:
It shows 1968, but it’s close. Regardless, it’s about timing where we are in the current cycle and I’m a bit confused now about whether we generally agree on that or not. We agree on any 3rd low being some way higher than 2009, but am I right in thinking that you think the secular stocks bear and secular commodities bulls are likely to last years yet? I guess your debt comments suggest so.
This is a debt chart echoing what I said about public debt:
and households have now normalised their debt:
http://scottgrannis.blogspot.co.uk/2012/10/household-financial-burdens-fall-to-30.html
So I envision the private sector expanding again whilst the public sector manages a much higher level of debt, to be contained by real growth and ratcheted higher inflation. Regarding my personal views, no I don’t see kicking the can as a solution – we are heading for a crisis later this century unless there are some radical changes. But as I’ve previously argued, there is ‘room’ ahead of that for another secular stocks bull, and as a trader that’s what I’m judging, rather than whether the authorities are doing the right thing.
John, I prepared my post above before I had a chance to read your comments here. Would still like to know what the possibility of a debt purge in this cycle is from your perspective.
Regarding the Scott Grannis household financial burdens chart, it is worth considering that the chart is looking at payments as a % of income. Declining interest rates have been an enormous driver of the improvement here. Not sure there is much more to wring out there. Still, if I can get a 30 year mortgage at 1%, will go for as much as the lender will let me take.
The Carolan panic window is the 12 through 15 October this year given that 13-14 is a weekend.
Thanks Dan
Hi John,
Regarding to this Kondratieff cycle, I am a bit confused with what sub-season we are at in Hong Kong. Our interest rate is almost zero as Hong Kong dollar is pegged to US dollar; whenever the US lowers the interest rate, we have to follow. We have around 4-6% inflation rate and is expected to go higher again. Our housing price is higher than the historical price a lot and still climbing, thank to the influx of investment demand from mainland Chinese. Yet, the stock price is stagnating for a few years amid the rally of US equity and our confidence level has been falling according to our local news report. It seems like our current situation can’t exactly fit into the sub-season mentioned in the picture. What do you think ?
Hi Terry, with secular cycles, solar cycles or Kondratieff cycles, the global picture has to fit to make it valid, but within that there will be local differences. If we look at MSCI global equity we can see the secular bear, at G7 bonds and rates we can see secular bond bulls and ultra low yields, and at gold priced in different currencies we can see gold increasing in value across the board. The inflation you refer to is in line with what I wrote needs updating in K-winter theory, that central banks inflationary counter-actions are now a feature of a K-winter. The house price bull is the divergence, but again if we look at global real estate the picture is more in keeping.
Hello! I am glad that I have the supporters.
My similar article published earlier: V.A. Belkin
Chelyabinsk
BIG CYCLES OF SOLAR ACTIVITI AS A BASIS FOR BIG KONDRTIEFF CYCLES CONJUNCTURE // Chelyabinsk humanities, 2011, №4(17), , с.13-24. URL:
Click to access chelgum%204%2817%29.2011.pdf
Hello Vladimir, I would love to read your work, but can only load the first page of that document and it is in Russian. Do you have your findings anywhere in English?
Hello John! Unfortunately, the English do not. But the main thing I can say: my results correlate with yours. Specifically, between the major cycles of U.S. GDP and larger cycles of solar activity in the 20th century there was a moderate feedback (see Fig. 4). Kuznets cycles (for example, the U.S. GDP) correspond to the two solar cycles (Fig. 2). Large cycles of consumer inflation directly associated with large solar cycles (Figure 8, the correlation coefficient is equal to 0.56). Large cycles prime rate – rtg directly associated with large solar activity cycles (Fig. 11).
Regards, Belkin VA, leading researcher of Chelyabinsk branch of the Institute of Economics, Ural Branch of RAS, Doctor of Economic Sciences.
Hello John! I believe that your work deserves the highest praise and attention. But knowing the conservative economics on yourself, I beg to make the following suggestions. 1. Please give the sources of statistical and astrophysical data on which to build your chart. 2. Give some of them in charts or tables.
Further success and recognition you!
Doctor of Economics V. Belkin.
well done sir! ty for this post — having spent some hundreds of hours studying the k cycle myself I came to the conclusion that K-spring will likely be dated to 1q13 roughly as signaled by the simultaneous break in gold, yen and the first higher low in long rates all of which occurred alongside the break to new highs in SPX — the nature of spring is fear of return to depression and the market sentiment reflects this fully imo