Economic Cycle: There’s More Than One

My career and research began with an understanding that the world was cyclical, not linear. So I set out to discover, understand and project the economic cycle that drives our economy.

But I quickly discovered that there are an infinite number of cycles, from the shortest term to the longest term. The key is to determine which ones have the most impact on what you’re studying and then to create a hierarchy of them. From there, you end up with a system for forecasting and making better decisions.

The first economic cycle that was clear and had proven useful was the four-season cycle of alternating inflation, booms and busts, called the Kondratieff Wave.

The second major economic cycle I discovered was the Spending Wave: a 46-year lag on the birth index, showing when the average person would have their largest impact on the economy.

It was a good thing I found that second cycle because around that time, the Kondratieff Wave went through a massive change due to the shift to middle-class economies and the massive size of the baby-boom generation.

Forecasters following the cycle alone ended up being dead wrong when they thought a depression was coming in the 1990s.

I was not one of them. In fact, I was one of the few forecasters who correctly called the boom of that decade as I could see why it would be the strongest, demographically, in history.

I was able to do this while others couldn’t because I knew the ultimate rule in the cycles’ world. That is, when your best cycles don’t anticipate a new shift, there’s another, more powerful cycle at work.

You Can’t Dodge the Forces of an Economic Cycle

The thing is, when these “curve balls” strike, most forecasters go into denial. They try to defend their existing cycles and forecasting tools rather than looking to improve their system by adding new cycles or shifting the hierarchy.

Me? I’m constantly adjusting the hierarchy of my cycles… I’m constantly looking for reasons why any given cycle doesn’t unfold as expected… because I’m more interested in helping my readers survive and prosper through the booms and busts of our economic cycle than being closed-minded and stubborn.

And that’s exactly what I did when the Roaring 2000s threw me a curve ball and my Spending Wave failed to achieve the accuracy it was once capable of.

The final demographic wave of baby boomers didn’t create as big a bull market as I was expecting… so I knew another economic cycle was at play.

After searching, I found two new indicators:

  1. The 18-year Geopolitical Cycle; and
  2. The 30-year Commodity Cycle.

Both of these new cycles followed after my Spending Wave in the hierarchy and terms of importance.

I also had a critical Decennial Cycle that Ned Davis innovated. This cycle said the worst stock and economic crashes and crises tended to come in the first two to three years of each new decade.

The next curve ball I faced was that Ned’s cycle failed to impact, as usual, from 2010 into 2012, when I expected the great crash.

So I went back to the drawing board… I dug deeper… and I found that Ned’s cycle was driven by cycles of solar radiation, which were more like eight to 13 years long, and not as clock-work like.

The last Sunspot Cycle was one of the longest recorded to date and the present one looks to be peaking now, after which it should point down into late 2019 or so. This cycle is best at pinpointing major crashes when the other broader cycles point down as well.

And that’s where I am today.

The chart below shows my macro system for projecting economic trends, with my Spending Wave most important, followed by the Geopolitical Cycle, then the Commodity Cycle, and finally the Decennial Cycle.

See larger image

These four cycles now point down at the same time, from now into late 2019. The last time that happened was from 1930 to 1934: the Great Depression.

This system of cycles now explains why we didn’t get a further crash after 2008, as I’d expected, after baby boomers slowed their spending and the global financial crisis set in.

We needed the final trigger, the downside of the Decennial Cycle that I now can time much better than Ned Davis’s broad average cycles.

That’s why I was bold enough to use the subtitle of my recent book, The Demographic Cliff: How to Survive and Prosper in the Great Deflation of 2014 – 2019. Based on my hierarchy of cycles, I believe that great crash I’d expected in 2010 to 2102 will strike within the next year, and we’ll feel the pain off-and-on for the rest of the decade.

To summarize: the key to my forecasting methods is as follows…

  • Using predictable cycles that most other forecasters aren’t aware of;
  • Identifying the most critical cycles;
  • Putting those into a hierarchy or system; and
  • Continuing to refine the cycles and the hierarchy.

Adam O’Dell does much of the same. He has an innovative system for predicting short-term trends and shifts in stocks and sectors, a whole different realm than the one I operate within. That’s why he’s the chief investment analyst at Dent Research.

I don’t fully understand his system (like I said, not my area of expertise), but I know he has indicators that others don’t… he has a hierarchy for applying them… and he is constantly refining and improving them.

Maybe that’s why his returns have beaten most other systems I’ve seen in recent years!


Harry

P.S. If you’re to survive the crisis that is about to sweep across America, you need to know why it’s coming, what will trigger it, and what you need to do to protect your family. That’s why I’ve prepared this presentation for you. Watch it now, before it’s too late.

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Categories: Business Cycle

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.