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Financial Cycles:Master of Cycles and Time




                                     ---Bernard Baruch





                                    "The first 50 years of your economic life are the hardest. After that, it starts becoming easy."  

                                                                                                                   ---The Editor

      In 1947, Edward R. Dewey along with Edwin Dakin published a book called "Cycles -The Science of Prediction." Formerly an economist with the U.S. Dept. of Commerce, Dewey had been hired to find the cause of the depression. In his analysis of all the collected data, he picked up others in his department that were very advanced in business, mainly through a cycles approach. Having his book come out at this time was perhaps the worst thing to do. The United States economy had effectively been destroyed in the 1930s by the massive, over-financed fiat money credit and money bubble (the 1910s and '20s). The bankers deliberately contracted money to the point of having a new "money system" imposed upon it, its gold stolen, the gold price raised (after being called in) and a para-military economy created. This new para-military, economy was "constant warfare," as well as "constant debt creation," similar to England's perpetual war economy from 1694. Our federal government had become ingrained with the "military-industrial complex" as termed by President D. Eisenhower in 1959. Many of the politicians were former solders/officers. And pseudo-wars or "peace-keeping missions" called "Police Actions" were continually being created to use the huge manpower and equipment created to thwart hidden- and real enemies. The "Cold War" was a fabrication of this socialist state thinking and constant repetition in print and he media, keping the citizens in a constant state of fear. Thus, a military budget greater than any other nation on the planet.

      Controlling the economy implies that you can do anything over and above any natural forces or cyclical behavior of man. This is the pure rationality of every socialist, communist, dictator, one-party group think that has ever existed since the beginning of time, for controlling "your life." Once enough power gets concentrated into the political leaders or military leaders hands, your life is forfeit. Your freedoms are nonexistan! You have no rights!

      The existence of economic cycles implies that you- or anyone else, cannot control the economy or your station in life. Because it repeats in certain patterns of stagnancy, growth, maturity and contraction. Because everything that is alive is controlled by biological forces, in every type of system in your body. A woman knows this well because of her existence tied to reproduction, both in her menstral period/cycle (Menses - (Egyptian) - the Lunar cycle) as well as birth cycle of pregnancy, babies, children, teen and adult 'stages.' Death is a natural part of this cycle, both physically as well as economic. In a crowd society basis, people act differently than in a singlular state. No where is this better illustrated than in financial cycles. Long term price historical charts constantly show long, rounding patterns from high to highs over many years' time. Called rounding bottoms, as well as other visual patterns, these price actions can be analyzed as to their timing and reversal points.

                                                                                   THE KONDRATIEFF WAVE



      In wholesale price indexes, from accrued data gathered over hundreds of years' time, "Long Term Waves"and "-Cycles" appear as tho on call by a higher intelligence. A major 54-year index cycle of wholesale commodity prices as well as interest rates is perhaps the dominant cycle in American and all foreign Western economies. This 54-year "rhythm" in Dewey's book, is statistically proven in commodity indexes since data began being collated back around 1790. Some data I have collected carries it back to 1749, 27 years before our country was "born." And in fact, I have even found out that it is exactly  54.90-years in length. But with a secondary, negative cycle involved, it actually computes out to 54.19-years.

      The originator of this long-term financial impulse wave in commodities and interest rates was a Russian economist, Nicolai D. Kondratieff (1892-1938), in Stalin's Agricultural Acadamy and Business Research Institute. Originally published in German 1926 I believe, "Long Waves in Economic Life" was his empirical observations that this 'wave' ranged from 48- to 60 years in length. It followed roughly four elements to create each cycle that he best described as Spring (inflationary growth), Summer (stagflation), Fall (deflation) and Winter (deflation/depression) for all economies. Our beneficial inflation was from 1946-47 to 1974, with a 7-year "skip" involved this time - my analysis. Then, from 1980-81, there was a commodities deflation until 2001/03 to very low levels of commodities, many trading at below break-even cost levels. Crude oil - $ 17; gold - $ 252; silver - $ 4.50, etc. Interest rates paralleled this huge drop in raw materials values. Short term rates dropped to 1.00 % for federal funds. In Japan, rates dropped to 0.00 % and still, no one wanted to borrow money from banks for any reason. Completely illogical in economic theory, but logical in the real world. Bank in 1974, s.t. rates hit 13 %, and by the spike in 1980 - 21 %. Poor quality debt issued in the beneficial deflation stage, is rampant and overissued. Medium quality corporate debt like Ford's and General Motors's is downgraded as more and more workers fail to pay off car loans at give-away rates. Currently, (2006) these car companys' debt has been downgraded to 'junk' status which implies they will never be paid off, or at least, at a % on the dollar. Therefore, many institutions, by law, must dump their debt paper to stay invested in C-grade debt or higher. Junk bond status is more speculative like stock prices with a possibility of going broke or, no payment at all.

     Based on debt creation and expansion, economies have a 'life-cycle' all of their own. Because Kondratieff summarized his findings as affecting all economies, no matter the type - including communism, he was banished to Siberia. He supposedly died in or around 1938 in exile. Another case of "kill the merssenger to hide the bad news and maybe it'll not affect us" by their wise leaders. In America, economists and financial people are derided and treated as witches to make their cyclical approach feel unappreciated. This long-term cycle has become known as the K-Wave, mainly based on phases of debt buildup and repudiation in an economy.

      More importantly, because of my penchant of doing thorough research to prove or disprove something, I have traced it back to its points of initiation or energy cycle origin (major turnpoints). That is, the actual behavior of the energy factor that influences the masses of humans to behave like herd animals, has been found by this analyst. Then actual data that economists read may- or may not turn exactly on these time points, but must turn in the direction the wave or cycle states. So visual judgement or imperical observation by so-called traders, economists and professors, trying to find the exact turnpoints, always disagree. That is because they fail to go back to the energy source. Nor do they acknowledge that such energy even exists. It's not easy having a discussion with a city-raised person, on the life cycles of animals and food.  

                                       "All they know is what they know." ---King Solomon

     In the K-Winter period, debt is going to be 'purged' or reduced sharply. Excesses are going to be cut back, both by intent as well as the economic situation. The inflationary bull markets of commodities that began in 2002-03, will fall back sharply after these dynamic bull markets occur. In mid-2005, steel prices, a sign of commercial real estate building as well as car manufacturing, collapsed. Many other types of physicals however, continue to climb due to a mixture of demand functions. But in the long run, the highs and the lows of physicals will be bullish until the year 2030. - Ed. The Federal Reserve's new Chairman Bennie Bernanke (a Princeton graduate) suggested dropped money from helicopters to continue the growth. So "Helicopter Money" is a consideration in the grand scheme of the new, improved socialist American economy.

                                     A "SCHILDGEN HALF-CYCLE" OR WAVE OF 27.08-YRS.

                                                   [INFLATION OR DEFLATION WAVES]

      Waves of expansion and contraction, of 27.45-yrs. each (27.08 yrs. adjusted), are what create lifetime patterns of attitudes and behavior in running businesses. When the pattern reverses however, dramatic changes in economic activity destroy those who do not change in unison. These are called "Crises." Also termed financial panics or crashes because of a large sector of some industry or even a whole economy, they reduce some peoples' lives to ruin and despair. The years 1974 (and 1980-81), 1920, 1864, 1810 and 1755-56 were all dramatic climaxes of very high interest rates and high commodity prices, turning sharply to the downside. Banks were wiped out in the hundreds- and even thousands at times. No foreign invasion by standing armies could have wracked as much economic damage to the business of nations as these events. They were described by financial reporters and journalists, but only as ignorant bystanders, usually of the emotions of the people caught up in the crowd mania and greed.                                

      Paralleling these dramtic, obvious buying climaxes, were the "quiet crises" or extreme lows in interest rates and commodity prices, traded at below the cost of production. Years, by my measure, of exact reversals of this type were 2002-03, 1947, 1893-96, 1837, 1783 and 1729-30. Best described as a state of a stagnating economy, the low interest rate situation encouraged wild speculation based on easily obtainable bank credit loans. Currently (2005), the obvious area of wild bank financial excess is evidenced by our current Real Estate Bubble.

                                            THE CYCLES OF SAMUEL BENNER, 1875.

       Having been wiped out in the Panic of 1873, this Ohio pig farmer sat down and used his education as an engineer to find 'the' cause of his demise, and wave- or cyclical behavior in several primary commodities of his time. Even marrying the daughter of a state senator didn't protect him from the ravages of an economic crisis. Having the largest swine farm and corn operation in Ohio merely meant that he was fated to lose much more than anyone else in the same field due to his lack of understanding. After studying data of farm prices and the recorded financial panics up to that date, he created what was called by Edward Dewey the "most accurate explanation of commodity price swings he had ever seen."

      Benner's cycles fell into three categories, highs, lows and panics.

           Highs: were 9, 7 and 11 years in sequence.

           Lows: were 8, 9 and 10 years in sequence.

           Panic cycles: 20, 16, 20 and 18 years in sequence.

      Major panics that happened prior were the Panic of 1819, Panic of 1837, Panic of 1857 and Panic of 1873. Afterwards, the Panic of 1893 came right on schedule. He was truly a genius on many levels. No business school, to my knowledge, teaches its budding students of cycles in business let alone knowledge of these pioneers of the American financial economy.

      No other cycles analyst has come as close to what Benner did, mainly due to the variable pattern he discovered and wrote about. Carried forward up until the massive economic hiatus in the 1930s, he was correct in calling turnpoints about 1 in 44 times, an amazing feat. Most cycles experts are obsessed with exact times or lengths of cycles, usually because of their high mathematical leaning. But that's not reality. Because of my own interests, I took the construction he did and reverse engineered it to the source. It took me only about ten years of miscellaneous experimentation and study to do so. Then I carried it both forward and back in time from Benner's observed timeframe. To me the key was the average 27+ years of high prices (total) as well as 27+ years of depression prices. And averaging all the spacing between panics, the average time was 18-years. Three 18-year panic cycles equals 54-years! But there is greater accuracy in this than what Benner found. He did not include fractions on his cycles but was very close for the cyclic events immediately before and after his time.


      Doing one of my in-depth studies to find the source of some cycle, and then discovering some other unusual fact or axiom that works amazingly well, one of the greatest cycles I discovered applied to the hi-tech bubble of the 1980s-'90s. Searching out in my list of all the panics and crashes in stock history back to the mid-1700s, I discovered that there were really three dominent lengths occuring consistently. Only after the discovery of electricity in the 1880s, did America take this invention of applied power to unseen heights. The age of rail, steam and steel was maturing due to saturation and financial skulduggery of the highest kind as well.

      Due to testing of numerous cycle lengths, timing in stock indexes, and recalibration of testing certain highs and then lows, I found a dominant source and cycle length integrated. The two giant electronic stock bubbles - the 1950s-'60s Electronic Office Bubble as well as the 1980s-'90s Hi-tech Bubble, both came to choppy, violent ends. Highs were in January 1966 and January-March 2000. The time difference halved becomes 17 years on average, centered in 1983. The major low of August 1982 was very significant as the last 4-year cycle ending the down-debacle of prices from the late 1960s collapse. The two bull markets therefore, were "ended" at those other dates AND...  were exactly the trough lows for the entire 20th century in the continuous flow of equity indexes. Mid-1949, early-1932 and early 1915 were "Disasterous Depression" lows, in sync with the top in Jan. 1966, late-1982 and early-2000. All were related to electronic issues. All were low major events, or topped out the euphoric optimism of the bubble market. The next turn point will be a Major Low in 2016, actually in late-2016 to be exact. Whatever the mood, however the economy is going, no matter who the president, it will most likely be a disastrous low that should be bought.

                                                    OTHER CYCLIC-BASED ANALYSTS

      There are many persons out there who have made the discovery that cycles explain away many more price moves of the crowd in almost every market than any other approach. Newsletter writers and journalists alike are beginning to notice that markets per se, behave illogically for the news and information released to the news media. There simply is no 'logical' or perfectly-responding crowd behavior pattern evident. In fact, on most news releases, more money can be made by selling into a bullish announcement and buying into a new bearish announcement by reviewing analysis. Famous writers and analysts are: Bill Sarubbi (Meridian), Walter Bressert, Peter Eliades, Hans Hannula, Ian McAvity, Frank Taucher, Archie Crawford, Paul M. Montgomery, Jeanne Long, Stan Ehrlich, Bryce Gilmore, Robt. Minor, Jim Purucker, Larry Pesavento, Ernie Quigley, Michael Jenkins, Bob Prechter, Norm Winski, P.Q. Wall, Ray Merriman to name but a few currently active. More famous, older analysts are: L.J. Jenson, Donald Bradley, Lawrence E. Smith, Walter Studnicki, Prof. Weston, Donald Hoppe, Edson Beers Gould, J.M. Funk, George Bayer, William D. Gann, Lt. Cmdr. Williams, James Hurst, W. Stanley Jevons, Clifford C. Matlock, Burton Pugh, J. Schumpeter and J. M. Langham to name but a few. All in all, I have a 33-page bibliography of books, seminars and articles within my Vol. I: Reference Guide of the published works out there, of research I did almost fifteen years ago. The numbers have grown of course. Many have retired or passed away. But the search for the truth goes on. A new generation of open-minded traders and analysts is taking up the work of those who came before.




      Courtesy: From the    website. The above history of Sunspot Cycles numbers is very impressive to most

            financial traders. They almost always go crazy trying to fit the obvious into the visual stimulus seen above. Believe it or not, I've

            found that there is almost no single market that has a dominant price cycle factor involved.

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