Politics and Secular Stocks Bull/Bear Markets, The Fourth Turning Crisis

By: Tony_Caldaro

With the 2010 elections now history, Republicans regaining control in the House, the public is now optimistic again that change will take place. They are likely to be correct. However, the change may be from the Democratic - just pass the bills don’t read them – agenda, to a Stalemate - just vote against the bills don’t read them – agenda. Historically, this has been good for the equities market and the economy overall.

Less government intervention has proven to be a more cost effective economic policy than intervention. Especially when the FED is in the accommodative mode, as it continues to be today with the official announcement of QE 0.6. But this piece is not about politics. It is about human/market psychology cycles.

In 1997 authors W. Strauss and N. Howe wrote a must read book entitied; “The Fourth Turning”: http://www.amazon.com/Fourth-Turning-William-Strauss/dp/0767900464. If you get the chance to read it do so. The authors explain, in detail, that there is a four generational cycle that is solely dependent how on we raise our children. Each generation raises their children in a predictable cyclical pattern creating the four basic archtypes in mass human psychology: the prophet, the nomad, the hero and the artist. A link to their website: http://www.fourthturning.com/html/generations___archetypes.html. Then, as each archetype matures and begins to impress their nature, in positions of power, the four the phases, or turnings, of the cycle unfold: a high/growth period, an awakening/protest period, an unraveling period and finally a crisis period: http://www.fourthturning.com/html/history___turnings.html. The crisis period is the current state of affairs. Each period lasts about 20 years - the length of a generation.

Authors Strauss and Howe did not discover what is termed the Saeculum cycle. They explain this four generational cycle was first discovered by the Sybil, in northern Italy, in the 9th century BC. The Sybil kept sacred books and were adepts. They predicted the rise and fall of the Roman Empire centuries before it began. Since this entire Saeculum concept was quite intriguing. I researched history, using publicly available information, and found the Saeculum cycle consistently at work for over 6,000 years. This was convincing evidence that there are repetitive cycles, at work, in humanity. Have posted about this subject in the past on this blog.

While writing this blog we have also posted about other recurring cycles, from 2 years to 68 years in duration. Just this weekend we commented on the 2 year tech product cycle, the four year presidential cycle, and the 34 year secular cycle. Tuesday’s election results were quite fascinating, and somewhat predictable, in respect to the 34 year secular cycle.

The Republicans gained 64 seats in the House to gain a majority. This is now the second largest election turnover to House Republican seats in history. The largest occurred in 1948 with a 75 seat gain, and the previous second largest was recently in 1994 with a 54 seat gain. On the surface this appears important but with no historical significance. When we compare the dates of these events to the Secular cycle we find some very important significance. All three events occurred during an existent secular bull/bear market, and within years of a shift. In example:

1. the 1948 75 seat gain occurred near the end of a secular bear market and just before the next secular bull market: 1949-1967.

2. the 1994 54 seat gain occurred near the end, and blowoff stage, of a secular bull market, and within 6 years of the beginning of the current secular bear market: 2000-2016?

3. this 2010 63 seat gain is occurring near the end of the secular bear market and within 6 years of the expected beginning of the next secular bull market: 2016-2034.

The political relationships do not end there in the Secular cycle. Nearing the end of a secular bear market the presidency is typically Democratic: Truman 1929-1949, Carter 1967-1982, and Obama 2000-2016. Then nearing the beginning of the next secular bull market the presidency turns Republican. But the president is typically a well known, charismatic, non-professional politician: Eisenhower (a war hero) 1949-1967 and Reagan (an actor) 1982-2000. People want and demand real change, and finally get it. After scanning the political scene for potential 2012 Presidential candidates, that fit this screening. I only came up with only one person: NYC Mayor Mike Bloomberg. This is by no means a political endorsement. It’s only a potential possibility based upon the current list of likely candidates and the historical secular cycle. Would be interested in other candidates that would fit the criteria. History repeats itself because cycles constantly reoccur. Best to your trading/investing.

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After about 40 years of investing in the markets one learns that the markets are constantly changing, not only in price, but in what drives the markets. In the 1960s, the Nifty Fifty were the leaders of the stock market. In the 1970s, stock selection using Technical Analysis was important, as the market stayed with a trading range for the entire decade. In the 1980s, the market finally broke out of it doldrums, as the DOW broke through 1100 in 1982, and launched the greatest bull market on record. 

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Copyright © 2010 Tony Caldaro - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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