investors are getting ahead of themselves

A reader recommended I adapt an excerpt from April’s Leading Edge that discusses the seven laws of cycles. These are guiding principles by which I abide at all times when performing research and forecasts.

1. All of history and progress is exponential not linear, as knowledge and learning build on itself as in compound returns in investing.

This is why each generation cannot conceive of the changes that are coming with the next, and changes over history only come faster and harder than ever. There has been more progress in standard of living in the last 100 years than at all other times in human history.

2. Such exponential progress also only occurs in cycles. Cycles are inherent in the dynamic play of opposites that are the source of energy and creative design in life. Both sides are absolutely necessary and innovation/learning most comes in the “down” cycles.

People don’t like cycles because they have a downside and they want a “zip line to heaven.” My focus is that the greatest advantages come from seeing downward cycles coming when everyone else might miss them, and you learn the most from your mistakes, not your successes. Hence, the greatest innovations come in the downward cycles before they move mainstream in the upward cycles.

3. There are an infinite number of cycles in the shorter term and much fewer over the long term. That makes the short term more probabilistic or harder to predict and the longer-term more deterministic and easier.

This is why I can at best narrow shorter-term scenarios down to two, but longer-term scenarios can get to one, unless we see major changes or new insights. The hard part about long-term forecasting is identifying which few are the most critical. Once you can do that, it is easy to forecast decades or more in advance – over the rest of your lifetime! The shorter cycles average out in those time frames.

4. Any complex phenomenon, like the climate and the economy, requires a simple and limited hierarchy of cycles that most impact it, with one dominant and a few modifying (usually two or three). Adding more cycles only becomes more confusing after that.

My present and most powerful hierarchy of cycles revolves around the dominant 40-year demographic and two other longer-term ones: the 45-year technology and 35-year geopolitical cycle. It also includes a shorter-term 10-year boom/bust cycle around sunspots.

5. Every dominant cycle can be broken down most clearly into four seasons: spring, summer, fall, and winter. That’s how you determine the primary cycle.

The 40-year demographic cycle breaks into an 80-year four-season cycle every two-generation spending cycles. We are in the late stages of the winter season, which should bottom around 2023, but the 45-year technology cycle on its most powerful 90-year “super bubble” variant is bringing an exaggerated stock bubble within this winter season.

6. Cycles affect each other like the gravity of objects or planets. Larger cycles especially amplify smaller cycles, up or down.

The 500-year mega-innovation cycle has amplified our booms and busts since 1900. Hence, the greatest boom and bubble in history into current times. This cycle will continue to amplify into its peak around 2140-50.

7. Most important cycles are constant, or nearly so. The exponential nature of progress causes more progress and/or amplified shorter cycles to occur within them. It’s not that they get shorter with accelerated progress.

When I was younger, major product life cycles in things like appliances or cars happened about every 10 years, now they seem to be every two to three years… or less. But the major technology cycle continues to peak every 45 years like clockwork.

P.S. If you missed Adam O’Dell’s presentation yesterday, where he revealed his favorite market-timing strategy and the next opportunity he’s tracking, which is right around the corner, click here to catch a re-broadcast.

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Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.