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Mix-Ansicht- KONDRATIEFF WAVE CYCLE - ManfredF, 15.08.2001, 07:55
KONDRATIEFF WAVE CYCLE
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Category: Market Predictions
From: stcgg (Brian Morse)
To: ALL
Date Posted: August 14, 2001 at 19:24:41
Subject: KONDRATIEFF WAVE CYCLE..
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Over the course of centuries, business conditions have moved in identifiable cycles. Most people are familiar with quarterly, seasonal and even presidential election cycles but these are all subsets of the largest cycle ever discovered -- The Kondratieff Wave. To use an analogy, we can steer our rafts around the rocks as we travel down the river to the sea but if the river reverses its direction, the whole paradigm changes. The Kondratieff Wave is the river.
Structure of the wave
Discovered in the 1920's, the Kondratieff Wave is a long-term, 54-year cycle identified in prices and economic activity. It varies in length from 50-60 years and is relevant to most financial and commodity markets.
The wave has four phases, expansion, recession, plateau and depression (contraction). Social and economic conditions, such as wars, speculation and false confidence, can be seen in every iteration of the wave in every century analyzed.
During the expansion phase, conditions include rising prices, a growing economy and mildly bullish stock markets. By the end of this 25-30 year period, inflation is high. Its peak sets the stage for a deep recession beginning with a final spike in commodity prices. This phase usually ends with a major war, which contributes significantly to commodity inflation and misdirected business resources.
When the economy eventually recovers a decade long period of selective expansion, known as the"secondary plateau," begins. While isolated economies (local, regional, national) fall into deflationary contraction the general conditions are characterized by stable prices, peak economic capacity and strong bullish stock markets. The euphoria and excess speculation (including excess debt) create a bubble that bursts with a major shock (financial panic or stock market crash). That kicks off the final phase in the cycle. This contraction phase is characterized by falling prices (deflation), severe bear markets, and often by a major war (or war substitute). Financial conditions deteriorate and a 10-20 year period of economic stagnation begins which is known as the"secondary depression."
Behind the wave
Kondratieff's explanation for these cycles included the sequence of speculation and over investment at the top of the cycle, which drains resources and sparks inflation. Although commissioned by the communist regime to discredit capitalism, Kondratieff concluded that capitalist economies self-correct by this mechanism. Excesses are wrung out and a new period of growth can then begin.
The current cycle can be labeled as follows:
Revival (1949-1966)
Out of the ruins of WW2, 1949 gave birth to a new inflation/deflation cycle. The western economy was rebuilt and by doing so people regained confidence. This optimistic mood resulted in increased business activity and rising stock prices. Suddenly everybody realized that capitalism didn't fail. Governments and the Central Bank didn't want the economy to grow too fast so they tried to control inflation and wages. The first part of the up phase peaked around 1966.
Recession (1966-1981)
A long hot summer followed. Prices skyrocketed - helped by 2 OPEC shocks and so did inflation. This changed the mood dramatically which was reflected by an invisible stock market crash (we have made the crash visible by measuring it in real terms or constant dollars). Too much money, debt and capacity had been created. Inflation (the up phase) peaked around 1981.
Prosperity (1981-2000)
Inflation had caused lower demand so businesses turned their attention to efficiency: doing more with less resulting in lower prices. Global price compeitition increased and in order to survive businesses had to cut costs. This changed the mood to optimism once again. The stock market took off like a space shuttle. Everlasting prosperity ahead. And by creating even more debt we can now say we are experiencing a credit card economy.
Depression (2000-2010)
Winters are hard but very healthy. During such a period too much debt, money and capacity will be eliminated. Debt liquidiation will change the mood and pave the way for a depression. This will be reflected in a massive drop in stock prices (overall, 90% will be lost).
We are now in the process of completing the 5th such Kondratieff Cycle over the coming 10 years of Depression.
Im letzten Satz muß es wohl 4.Zyklus heissen.
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