I’m best known for my research on how demographic trends impact our economy. But before I discovered the power of demographics, back in the ’80s, I was a cycles guy. In fact, it was my finding that the spending of new generations was the most important cycle in modern times that made me a believer.
The first cycle I studied in the early 1980s was the Kondratieff Wave. Let’s call it the K-Wave today for simplicity’s sake.
In 1925, Russian economist Nikolai Kondratiev published details about a cycle he’d found in prices. As it turned out, economies experienced a cyclical pattern of inflation and deflation that repeated every 50 to 60 years. During that time, he found, there would be two periods of boom and bust.
This is now the basis for my 80-Year Four Season Economic Cycle, which breaks down into a spring boom with modestly rising inflation, a summer bust with a peak in inflation, a fall boom with falling inflation, and a winter bust with deflation.
It looks like this…
But why is my cycle 20 to 30 years longer than Kondratiev’s? Because I incorporated demographics into my research, calculations and observations.
I discovered the Spending Wave in 1988. It showed me that new generations peak in spending at age 46. This in turn allowed me to see the great downturn in Japan in 1990… no one else saw it coming.
A year later, I discovered the relationship between inflation and workforce growth, what I call the Inflation Indicator. This is actually a demographic factor. I can project when young people will enter the workforce and when the older people will retire.
This was a big insight because young people cause inflation. They cost everything to educate, train and integrate into the workforce, and produce nothing while that happens. Only once they’re truly productive members of the workforce do they drive forward their Spending Wave.
The combination of inflation and boom/bust trends allowed me to re-invent the K-wave in demographic and more predictable terms. And so my 80-Year Four Season Economic Cycle was born.
Using all the traditional cycles, many very good forecasters predicted a depression in the 1990s. I disagreed because demographic trends and my new economic cycle told me the Baby Boom would see its strongest spending surge during that decade.
Instead, I saw us reaching the fall bubble boom peak in 2007, after which we’d suffer through the winter season from 2008 to around 2023.
My cycles worked almost perfectly through the 1990s. I nailed the Japanese collapse forecast… the dot.com bubble burst prediction… and the housing bubble peak in late 2005.
Then something changed. I forecast the stock crash and downturn in early 2000, but it was deeper than I expected. I forecast the upturn in early October of 2002, but it was not as bubbly as I expected when comparing it to the Roaring 20s on this 80-year cycle.
When something happens that I don’t expect, I dig deeper and look for answers. So I began hunting for what was different in the Roaring 20s boom versus the Roaring 2000s.
In early 2006, I discovered two new powerful cycles:
1) The 36-year Geopolitical Cycle, and
2) The 30-Year Commodity Cycle.
These two cycles explained why we saw the Dow merely double from 2002 to 2007 rather than quadruple as I’d expected. Commodity prices were down and favorable in the 1920s, but up and unfavorable in the 2000s. The geopolitical environment or risk was very favorable in the 1920s, but very unfavorable from 2001 forward.
As a refresher, the Geopolitical Cycle alternates from favorable to unfavorable every 18 years. For example, the cycle turned unfavorable in 2001 (and will continue downward through 2019). The tech wreck intensified in 2001 and then we got 9/11. The world has been a mess ever since.
And the Commodity Cycle peaks every 29 to 30 years. This cycle most impacts emerging countries that tend to be big commodity exporters… and is the reason emerging markets have been tanking as it moves down.
I have been damn near crucified for over-predicting the Dow in the late 2002 to late 2007 boom. But we had our subscribers invested and I got two valuable new cycles out of that miscalculation. What a deal that was!
But there is another important cycle I discovered in early 2013. I had been using a Decennial boom/bust cycle from Ned Davis. He averaged the stock market over the last century and found that the first two or three years of every decade tended to see the worst stock crashes and downturns.
When that and the four-year Presidential cycle collided, it was a slam dunk for a 20%+ stock crash and a recession. The next such cycle would have been 2010 to 2012, especially 2010. That’s when I most expected the next major stock crash to start.
Then an article in Barrons forced me to reconsider a cycle I’d heard years earlier: sunspot cycles.
I had dismissed this before because it was called an 11-year cycle and I saw no correlations on that time frame. I went back and found that in the last century, it has averaged 10 years, just as Ned Davis found. But it ranged from nine to 13 years.
The last cycle was unusually long and now it points down later, between early 2014 and late 2019. Almost all major crashes and recessions back to the 1800s have occurred in this down cycle.
The sunspot cycle is now the second most important cycle I have discovered, and is the key trigger for crashes when my other key cycles are pointing down. Almost no one knows about this and that makes it a secret weapon for me and you, my subscribers.
To make a long story short: all four of these key cycles point down together between 2014 and 2019. This is the first time since the early 1930s that this has happened. And we all know about the Great Depression.
Be warned! The next major crash is very likely to start between late 2014 and late 2016.
If you’ve been sitting on the fence about subscribing to our Boom & Bust newsletter, it’s time to jump off and do it!
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