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Kondratieff Wave

Publicerad 2016-08-18 10:59:56 i Ekonomi,

What Are Kondratiev Waves?

Investopedia defines the Kondratieff Wave as, “A long-term cycle present in capitalist economies that represents long-term, high-growth and low-growth economic periods.” The initial study by Kondratiev was based on the European agricultural commodity and copper prices. He noticed this period of evolution and self-correction in the economic activity of the capitalist nations and felt it was important to document.

Chart 1 CNA

These waves are long cycles, lasting 50-60 years and consisting of various phases that are repetitive in nature. They are divided into four primary cycles:

  1. Spring-Inflationary growth phase: The first wave starts after a depressed economic state. With growth comes inflation. This phase sees stable prices, stable interest rates and a rising stock market, which is led by strong corporate profits and technological innovations. This phase generally lasts for 25 years.
  1. Summer-Stagflation (Recession): This phase witnesses wars such as the War of 1812, the Civil War, the World Wars and the Vietnam War. War leads to a shortage of resources, which leads to rising prices, rising interest rates and higher debt, and because of these factors, companies’ profits decline.
  1. Autumn-Deflationary Growth (Plateau period): After the end of war, people want economic stability. While the economy sees growth in selective sectors, this period also witnesses social and technological innovations. Prices fall and interest rates are low, which leads to higher debt and consumption.  At the same time, companies’ profits rise, resulting in a strong stock market. All of these excesses end with a major speculative bubble.
  1. Winter-Depression: This is a period of correcting the excesses of the past and preparing the foundation for future growth. Prices fall, profits decline and stock markets correct to the downside. However, this period also refines the technologies of the past with innovation, making it cheaper and more available for the masses.

Accuracy Of The Cycle Over The Last 200 Years

The K-Waves have stood the test of time.  They have correctly identified various periods of important economic activity within the past 200 years. The chart below outlines its accuracy.

Very few cycles in history are as accurate as the Kondratiev waves.

The Wave Is Being Pushed Ahead But The Mood Confirms A Kondratiev Winter

Chart 3 CNA

 

Chart 4 CNA

A closer study reveals that the cycles are being pushed forward temporarily. Any intervention in the natural cycle unleashes the wrath of nature, and the current phase of economic excess will also end in a similar correction. The K-Wave winter cycle that started in 2000 was aligned with the dot-com bubble.

The current stock market rise is fueled by the easy monetary policy of the global central banks. Barring a small period of time from 2005-2007 when the mood of the public was optimistic, the winter had been spent with people in a depressed social mood. The stock market rally from 2009-2015 will be perceived as the most hated rally and the one most laden with fear.

Every dip of a few hundred points in the stock market starts with a comparison to the Great Recession of 2007-2009. The mood exudes fear and disbelief that the efforts of the central banks have not been successful and are unable to thwart off the winter, as predicted by the K-Waves. The winter is here and is reflected in the depressed social mood.

How To Weather Out Brutal Winter

In the last phase of the winter cycle, from 2016-2020, which is likely to test us, the stock market top is in place. Global economic activity has peaked, terrorism further threatens our lives, geopolitical risks have risen, the current levels of debt across the developed world are unmanageable, and a legitimate threat of a currency war occurring will all end with the “The Great Reset.” Gold will be likely to perform better during this winter cycle. Get in love with the yellow metal; it’s the blanket which will help you withstand the winter.

Conclusion

Cycles are generally repetitive forces that give us an insight into the future so we can be prepared to face it and prosper. Without excessive intervention, nature is very forgiving while correcting the excesses.  But if one meddles with nature, it can be merciless during the correction. The current economic condition will end with yet another reset in the financial markets. Prices will not rise forever, and a correction will take hold eventually. Until then, we follow and trade accordingly. I will suggest the necessary steps to avoid losses and prosper from market turmoil when it unfolds.

 

 

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Roger Lundberg

Har varit verksam inom den finansiella marknaden i över 35 år. Har därmed varit med om både upp och nedgångar inom olika marknader. Min bedömning är att vi närmar oss en ny härdsmälta på de ekonomiska marknaderna och vill därför med denna blogg dela med mig av min erfarenhet.

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