When I came out with The Great Depression Ahead in late 2008, I had no idea central banks around the world would pull out all the stops and commit to endless Quantitative Easing (QE) and a money printing policy.
Of course, I did expect a strong stimulus program and a rally that could last into early 2010. After all, central banks and governments had to do something.
I did NOT expect five years and over $10 trillion in money printing globally. Or the resultant stock rebound that has lasted into 2013. Even more liberal economists would not have expected that back then.
Such central bank activities, taken to such extremes, have never happened before. The only time we saw something remotely close was when the government printed money to keep bond rates down so it could finance World War II.
But central bankers are typically more conservative and responsible than they’ve been in the last five years. Their change in behavior has forced me to continue to update my forecast over the last few years to the upside again.
Here’s what you need to know…
As long as inflation doesn’t rear its ugly head, most central bankers think it’s okay to endlessly print money. What they don’t realize is their behavior kills the innovative power of free markets. It twists and perverts them, creating more bubbles that will ALWAYS burst.
Quantitative Easing and stimulus money in this environment of demographic slowing in spending and excessive debt doesn’t flow directly into lending or expanding productive capacity and jobs. It spills directly into speculation, and suddenly every financial institution and bankster (and their dogs) are blowing up bubbles like there’s no tomorrow.
The commodity bubble first burst in mid-2008 and then started to burst again after April 2011… and the gold bubble started to burst in mid-2013. Stocks are now making new highs in the worst global economy since the 1930s. And real estate has surged higher again after the worst burst since the 1930s. All of these bubbles are due for a painful bust ahead.
I use a hierarchy of cycles to forecast long-term scenarios. The Geopolitical Cycle turned the corner in 2001 with an 18-year downward trend until 2019. The Spending Wave Cycle started its downturn in 2008 and will follow that trend into 2020 to 2023. And the Commodity Cycle began its trip down in 2008 as well. It, too, is only due to turn around in 2023 or so.
All three cycles point down between mid-2008 and late 2019! Nothing in my forecast has changed on that front – which means the worst is still ahead!
But I also use two medium-term cycles. The Decennial Cycle (from Ned Davis) typically sees the worst crashes in the first two or three years of each decade. However, I’ve found a flaw in that cycle when it didn’t work well for the first time since the 1960s.
Ned Davis developed the cycle by averaging stock markets over the last century. It turns out that the actual cause is sunspot cycles that move in 10-year cycles (on average) but that vary between eight and 12 years. NASA and other scientific groups are good at predicting this cycle, and they’ve noticed that the current cycle is irregular. Instead of peaking around late 2009 or early 2010, this cycle is projected to peak in late 2013, and then turn down into around late 2019.
Then there’s the four-year Presidential Cycle that points down into 2014 and 2018. Ahead, that warns that those years are likely to be the triggers for the next crashes.
In short, all the major cycles I track point down between very late 2013 and late 2019. They all support my forecast of financial turmoil and crisis ahead. During the next six years, a depression will hit and we’ll see a sharp debt-deleveraging period. And I expect the next major crash to unfold starting in very early 2014.
You see, since the 1950s, only one out of 10 bull markets has lasted longer than five years (late 1987 to early 2000), without a 20% plus correction. The average has been more like 3.7 years and the average correction after has been 36%. This bull market will be five years old by early 2014.
The last major bull market top between 1965 and 1972 saw a series of higher highs and lower lows until the 50% crash in 1973 to 1974.
And the increasing volatility in the last decades of higher highs and greater crashes – 51% in 2000 to 2002 and 58% in 2008 to 2009 – suggests the next crash will be larger. I’m talking 65% here!
Unless, of course, governments find a way to forever get away with their irresponsible stimulus activities.
Fat chance! Personally, I don’t think they’ll be able to pull that off.
That’s why I am working feverishly to get my next book, The Demographic Cliff, out by January 2014, when I think the next great crash is likely to begin.
P.S. As soon as I have confirmation from my publisher that The Demographic Cliff will be available in January, I’ll let you know.
Ahead of the Curve with Adam O’Dell
Harry’s spent the last 23 years studying cycles (among other things). That’s why I’m fascinated with his work. He’s able to see cyclical turns well in advance of the shorter-term cycles I study.