To add a little more to the last post on demographics, solar cycles and equities, here is the long term inflation-adjusted UK FTSE chart. The ‘xx years’ red/green colouring is not my work. I have instead marked the solar maxima in black.
Green circles are secular commodities peaks, every third solar maximum, equities buy point (note the equities buy point follows the secular commodities and solar peak by 1-4 years). Yellow circles are secular stocks interim peaks, every third solar maximum. Red circles are secular stock final peaks, every third solar maximum. It’s a very neat chart from a solar cycles perspective, and it may offer more evidence of the 33-year lunisolar cycle (3 solar cycles) creating sine waves in the markets.
However, the long term Nikkei chart that I presented in the last post did not conform. The secular peaks and troughs aligned with solar maxima but the 33-year cycle was not in evidence in the same way. What is consistent across the long term charts for FTSE, Nikkei and Dow was that secular turns aligned with solar maxima, and demographics dictated whether the market was in a secular bull or bear for any specific solar cycle, between maxima.
The reason the Nikkei made a secular bull in the 1970s solar cycle whilst the Dow made a secular bear was demographics, and the same applied in reverse in the 1990s solar cycle. It appears that a secular bull or bear is dependent on the demographic trend, whilst cyclical bulls or bears within the overall trend are not. During the 1990s, the Nikkei made cyclical bulls and bears that aligned with cyclical bulls and bears in the Dow. However, the Nikkei cyclical bulls were more sideways and the bears more downwards than the Dow’s respectively. In other words, stock indices around the world largely move together in cyclical bull and bear trends, but the gradient of the moves (and p/e progression) differs to create an overall secular bull or bear.
So looking ahead to the next solar cycle, from maximum to maximum, circa 2013 to circa 2025, out of the top 10 largest economies in the world, those with demographic trends in that period to support secular bulls are USA, Japan, Brazil and India (with Mexico and Indonesia just outside the top 10 potentially offering additional support); whilst those with negative demographic trends that would argue for secular bears in this period are China, Germany, France, UK, Italy and Russia (or we might simplify to China and Europe).
Compare this to the last solar cycle which was primarily a secular stocks bull, namely the one from the 1989 solar max to the 2000 solar max. The top 10 largest economies in the world were pretty much as now, just with slight differences in order. USA, Europe, China and Brazil made secular bulls, whilst Japan, Russia and India made secular bears. So not all countries made secular bulls, but out of the most important economies in the world, the total GDP of those in secular bulls exceeded those in secular bears. The same should occur in the next solar cycle, but by a lesser margin (having made a comparative calculation). The bottom line is, there are enough of the big guns in a demographic position to generate a K-spring, and if China were to draw down on its massive currency reserves to stimulate the economy in this period then it could potentially escape a bear too. The UK and the Eurozone don’t have such a fallback, and I think it therefore likely that they will endure another secular bear 2013-2025 (circa), if the demographic correlations hold true.
In summary, I think we see an overall up-cycle for equities for the next solar cycle looking out to 2025 or so (whenever the solar maximum falls), a K-spring. But I think buy-and-hold will do best targeted at USA, Japan, Brazil and India, with Mexico and Indonesia also likely outperformers.
My new chapter is moving home to Austria next week. The big trip inspired a big move (and maybe the solar maximum inspired both?!). Certain further-afield countries on the trip were highly attractive, but with two kids the option we have long had under consideration won out. My wife is Austrian, we have a network of family and friends there already, and the kids will become truly bilingual in both the language and culture of their second nationality. We get the better climate that the trip made me crave.
So Eurozone issues are going to have more resonance from now on. We will be living in Vorarlberg, in the very West of Austria on the Swiss/German border. If you live anywhere near there, e.g. Zurich, Liechtenstein, Bodensee, and would like to meet up, please get in touch with me at john(at)solarcycles(dot)net.