Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

The Perfect Storm in a Kondratieff Long Wave Winter

Stock-Markets / Cycles Analysis Sep 24, 2011 - 02:35 AM GMT

By: David_Knox_Barker

Stock-Markets

Best Financial Markets Analysis ArticleCrashing global stock markets, debt defaults, overproduction, falling prices, tumbling interest rates, global debt deleveraging, and the clear necessity for austerity, they are all classic long wave forces now in full tilt, producing the perfect storm in a Kondratieff long wave winter. Only long wave theory explains the economic and financial events now unfolding daily in the global economy and financial markets.


You still have time to prepare for the final crisis phase and debt collapse, but don't delay. The global economy is now unequivocally in the final years of the long wave winter debt purge and what will be a sharp decline in corporate efficiency. Once this storm passes the global long wave economic reset button will be tripped, and the new global long wave spring season will begin.

Nikolai D. Kondratieff

The Russian economist Nikolai Kondratieff was the first to observe and document the remarkable recurring long wave patterns in the global boom and bust cycle, driven by global debt and overproduction. He published his findings in the 1920s. His work anticipated the next downturn that unfolded as the Great Depression. Politicians appear to be incapable of seeing beyond a single election cycle. Politicians have ignored the evidence for the long wave once again. Most economists have as well, although a few are starting to pay more attention as the long wave facts are now difficult to ignore.

Some of Kondratieff's original charts indicate just how far ahead of his contemporaries Kondratieff was in understanding the dynamic ebb and flow of international free market capitalism. There are those that claim he only discovered an agricultural commodity cycle. The charts below and his own words suggest he discovered a long wave dynamic cycle that permeates the entire economy and all of society. He wrote, "The long waves, if existent at all, are a very important and essential factor in economic development, a factor the effects of which can be found in all the principal fields of social and economic life."

Index Numbers of Commodity Prices

Political and monetary policies have exacerbated and magnified the natural long wave forces at work in the global economy and financial markets. The global economy now finds itself in a blinding blizzard in the Kondratieff long wave winter season. Many are unprepared and under the delusion that government intervention can and will save the day. Government meddling only makes matters worse. Investors or businesses that count on government policies to save them will be sorely disappointed. The long wave winter season will run its course and the current perfect storm will shatter the illusions of government as savior of international free market capitalism. Keynesianism will die a merciless death in this long wave winter storm.

Federal Reserve Chairman Bernanke has admitted that he does not understand why the economy has not responded to the aggressive monetary stimulus of lower interest rates and quantitative easing, so now he tries the twist. Bernanke should read Kondratieff and the findings at the System Dynamics program at MIT, which has validated long wave theory. The long wave is the natural cycle of creative destruction in a free market economy; ignore it at your peril.

The long wave turn from winter to spring is just as natural as winter invariably giving way to spring in the natural seasons of the year. Only long wave theory explains the combination of the current economic and financial market conditions, where excessive debt levels and overproduction are now chipping away at corporate efficiency, forcing investor around the world to discount the present value they are willing to pay for future cash flows. Future corporate margins and therefore cash flows are rapidly becoming uncertain as prices received plunge from overproduction funded with too much debt. In short, global financial markets are getting an old fashion haircut, maybe even a buzz cut.

The fact that free market capitalism goes through a long wave rough patch is a natural law of sorts in free market capitalism. Don't mess with mother nature. The Obama Administration has been shocked to discover that fiscal stimulus has failed to generate the expected jobs. The president should expand his reading list. He is now in line to lose his job along with millions of others around the world. In addition to Kondratieff, the president should put Ludwig von Mises' Human Action, Adam Smith's Wealth of Nations, and Bastiat's The Law, on his reading list. Government should not try to do what only a free market, free trade and individuals in pursuit of purpose are capable of doing. Human liberty and freedom, unhampered by government intervention can achieve great things. It is the only solution to the global problems produced by a long wave winter.

Entrepreneurs, new businesses and innovation in existing businesses are the only viable engines of growth and job creation. Substantially lowering corporate taxes for small business and closing tax loopholes will cause the economy to boom and create jobs. Enterprises funded by government in exchange for their political contributions are destined for failure. The politicians involved in any such bribery and conspiracy with taxpayer funds should be sent to jail. Without free market forces and individual responsibility, and swift and harsh punishment for failure, capitalism will not function correctly. Seed stolen from farmers and planted in winter is doomed to failure. It only harms the real farmers and reduces future crops in their natural season.

On the bright side, corporate profits have held up remarkably well in light of the long wave winter forces in play, a testimony to management and the resilience of free market capitalism in crisis. Profits have been driven by emerging market demand, increases in efficiency, lower interest rates, payroll reductions through layoffs and low wage growth. Business has cut to the bone to deliver profits, and there is nothing left to cut. Unfortunately, the global economy is now in a long wave winter storm. Businesses are facing a global collapse in demand, in addition to political interference and stifling regulation. These forces are idling production and putting extreme downward pressure on prices. The CRB is plunging as overproduction swamps global markets with an excess supply of products and services. The long wave forces in play are now beginning to erode corporate profits.

Global leaders are in shock at the specter of a sovereign debt default that is shaking the global financial system to its core. The hopes pinned on emerging markets are fading fast, as even the economies in China, Brazil, Russia and India cool as anticipated during the long wave winter. The perfect storm is gaining strength. Emerging markets are stumbling; corporate profits will now take a hit when the global economy can least afford it.

The global economy is now in the final crisis years of the long wave winter season that will be cruel to corporate profits. The long wave is essentially at its heart a boom and bust cycle of corporate efficiency produced by human action. The winter season is driven by overproduction, this exists in goods and services, which puts downward pressure on prices received. Prices paid are also falling, but in a long wave winter storm prices received will fall much faster. This occurs when excessive debt and the inevitable debt deleveraging by consumers, businesses and governments is creating a severe decline in demand. The overproduction feeds additional price declines and additional contracting corporate margins.

Long Wave Prices and Corporate Efficiency

The long wave boom and bust cycle of corporate efficiency is eventually recognized by global investors searching for a piece of corporate profits to buy in the form of publicly traded stocks. This is occurring now. Every long wave contains two bull markets and two bear markets. The spring and fall seasons of the long wave of rising corporate efficiency and expanding margins are bull markets, the summer and winter seasons of declining corporate efficiency and declining margins produce bear markets.

It takes a while for investors to catch on. The bear market of the global long wave winter began in the late 1990s in most developed markets. It is now in its final years of rapidly deteriorating corporate efficiency and investors around the world are recognizing the squeeze facing corporate profits. There are other long wave forces at work, but the ebb and flow of corporate efficiency and profits is critical to bull and bear markets. Profits are the mother's milk of stocks, and the milk production will plunge as this long wave winter storm plays out.

The current bear market will run its course along with deteriorating corporate efficiency. The demand destruction of global debt deleveraging will drive corporate margins and profits lower into the expected long wave bottom of 2012-13. A severe global bear market will take stock markets much lower as corporate efficiency and profits are squeezed into the long wave winter bottom.

If you have never seen a long wave in real data, you have never seen a long-term graph of the U.S. 30-Year long bond. Interest rates are the price of money. During a long wave advance, the demand for money is growing and its price is rising, during a long wave decline, the demand for legitimate uses for money is shrinking and its price is falling. The U.S. long bond is a great proxy for the price of money. The demand for borrowing money and its price is falling.

The demand to borrow money by legitimate borrowers that understand what it takes to earn a dollar, i.e., those that have a chance of paying it back, is declining. They do not want to borrow money at this time. For years, my call for a U.S. 2% 30-Year bond and a 1% 10-Year bond at the bottom of this long wave winter has been in place. I see no reason to change that call now. The low in the price of money will coincide with a low for stock prices from late-2012 to mid-2013. The perfect storm of this long wave winter season is driving the price of money lower. Since Chairman Bernanke has called for low rates into mid-2013, maybe someone showed him this chart. Kondratieff would no doubt have loved this chart, which confirms his theory concerning the dynamic ebb and flow of international free market capitalism is not subject to the vagaries of misguided Keynesian manipulation.

Long-term US Treasury constant maturity

The current business cycle is the final business cycle of the long wave cycle. What few investors and traders are aware of is a method of technical analysis that suggests that a Kondratieff long wave divided by 144 produces a miniature long wave cycle, a Wall cycle. There are nine Wall cycles in every business cycle. By tracking these Wall cycles both investors and traders can discover more optimal times to buy and sell to reduce risks and maximize returns. This applies whether they buy stocks for the discounted present value of future cash flows, growth, or just to trade the cycles. Unfortunately, global markets are in Wall cycle number six of the current business cycle. This is a third last and weakest cycle, so prepare for outsized volatility and price declines into the bottom of this cycle.

Investors are panicking, even though global markets are experiencing something as natural as a winter blizzard in January. Before it is over, this global bear market will present investors with the greatest discounted buying opportunities for future cash flows since the early 1930s. Keep much of your power dry; 8-16% dividend yields on great global franchise companies are coming to a stock market near you before the perfect long wave winter storm gives way to a global long wave spring in 2013. Those great buys and dividend yields will be compounded many times over during the coming long wave spring season.

David Knox Barker is a long wave analyst, technical market analyst, world-systems analyst and author of Jubilee on Wall Street; An Optimistic Look at the Global Financial Crash, Updated and Expanded Edition (2009). He is the founder of LongWaveDynamics.com, and the publisher and editor of The Long Wave Dynamics Letter and the LWD Weekly Update Blog. Barker has studied and researched the Kondratieff long wave “Jubilee” cycle for over 25 years. He is one of the world’s foremost experts on the economic long wave. Barker was also founder and CEO for ten years from 1997 to 2007 of a successful life sciences research and marketing services company, serving a majority of the top 20 global life science companies. Barker holds a bachelor’s degree in finance and a master’s degree in political science.  He enjoys reading, running and discussing big ideas with family and friends. 

© 2011 Copyright David Knox Barker - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules