CYCLES and TRENDS

transcript

DAVID CHAPMANDAVID CHAPMAN

“Those who cannot remember the past are condemned to repeating it”

-- George Santayana (1863-1952)

“The people are turbulent and changing, they seldom judge or determine right.”

-- Alexander Hamilton (1755-1804)

“The issue today is the same as it has been throughout all history, whether man shall be allowed

to govern himself or be ruled by a small elite”-- Thomas Jefferson (1743-1826)

CYCLES and TRENDSCYCLES and TRENDS

Long Term CyclesLong Term Cycles

Dewey & Dakin (54 Year Commodity Cycle)

Kondratieff Kwave (54-60 Year Supercycle)

Edward Dewey And Edward DakinEdward Dewey And Edward Dakin

● 54 Year Cycle

● Their book charted prices from 1790 for wholesale prices that coincided with peaks and valleys for commodity prices

● Cycle measured peak to trough with roughly 27 years to peak and 27 years to trough

DEWEY & DAKIN PREDICTIONSDEWEY & DAKIN PREDICTIONS

Year of Peak Prediction – Year of Peak Prediction – Dewey & DakinDewey & Dakin

Actual Peak Actual Peak Peak WarPeak War

1755 * Seven Years War aka French Indian Wars (Britain/France)

1817 1817 (1810) War of 1812

1871 1868 (1864) Civil War

1925 1920 WW1

1979 1980/81 (1974/75) Vietnam

2033 War on Terror? WW3?

Year of Trough Prediction – Year of Trough Prediction – Dewy & DakinDewy & Dakin

Actual TroughActual Trough Trough WarTrough War

1729/1730 * French Colonies and Great Britain

1790 1790 (1783) American Revolution

1844 1842 (1837) Mexican American War

1952 1949 (1932 and 1947) WW2

2006 2001 Cold War/Gulf Wars/Balkan Wars

DEWEY & DAKIN PREDICTIONSDEWEY & DAKIN PREDICTIONS

Kondratieff Cycle or KwaveKondratieff Cycle or Kwave

● Russian Economist under Stalin

● 50-60/65 year cycle

● Can be controversial

● Not widely accepted

● Ian Gordon – Long Wave Analyst

www.longwavegroup.com

The K-Wave Cycles 1789-Present U.S.A.The K-Wave Cycles 1789-Present U.S.A.SPRING (EXPANSION) SUMMER (RECESSION) AUTUMN (PLATEAU) WINTER (DEPRESSION)

1784-1802 (American Revolution)

1803-1816 (War of 1812)

1817-1834 (Era of Good Feelings)

1835-1844 (Mexican American War)

1845-1858 (Mexican American War)

1859-1864 (Civil War)

1864-1874 (Reconstruction)

1875-1896 (Indian Wars)

1896-1907 (Spanish American War)

1908-1920 (WW1) 1921-1929 (Roaring 20’s)

1930-1948 (WW2)

1949-1966 (Korean War, Suez Crisis, Cuban Missile Crisis, Cold War)

1966-1981 (Vietnam War)

1982-2000 (The Information Age)

2000-? (War on Terror? WW3?)

Kondratieff Phase Best Investments Worst Investments Characteristics

Spring (Expansion)Inflationary Growth

Stocks, Real Estate and Commodities

slowly rising

Bonds Low inflation, healthy banking system, growing

savings

Summer (Recession)Stagflation

Commodities, Gold and Real Estate

Stocks and Bonds Inflation, debt growing (corporate),

stagnate growth

Autumn (Plateau)Deflationary Growth

Stocks, Bonds and Real Estate

Commodities and Gold

Debt levels soar (consumer), wealth

disparity, stock market euphoria,

low inflation

Winter (Depression)Deflation

Gold, Cash and Commodities in late

Stocks, Real Estate, Bonds (until end of credit crunch then

they fall again)

Deflation, debt collapse, trade conflicts, social

upheaval

Other CyclesOther Cycles

● Kuznets – 15-25 Year Real Estate/Infrastructure

● Juglar – 7-11 Year Business Cycle

● Kitchin – 3-5 Year Inventory Cycle

● Gold

● Silver

● Oil

● Natural Gas

Commodity CyclesCommodity Cycles

Bubbles And PanicsBubbles And Panics

Intermarket Technical AnalysisIntermarket Technical Analysis

SOME INTERESTING CHARTSSOME INTERESTING CHARTS

SOME ECONOMICSSOME ECONOMICS

Declining Consumer ConfidenceDeclining Consumer Confidence

Rising Household Debt Declining SavingsRising Household Debt Declining Savings

Rising Household Debt as % of Disposable Rising Household Debt as % of Disposable IncomeIncome

Declining Household Net Worth as % of Declining Household Net Worth as % of GDPGDP

Declining % of Homeowner EquityDeclining % of Homeowner Equity

Record High Total US Debt as % of GDPRecord High Total US Debt as % of GDP

Real Estate Decline Real Estate Decline

More Mortgage Resets to Come IMore Mortgage Resets to Come I

More Mortgage Resets to Come IIMore Mortgage Resets to Come II

Lots of Housing Supply on the MarketLots of Housing Supply on the Market

Housing Prices have taken a PoundingHousing Prices have taken a Pounding

And there is More to ComeAnd there is More to Come

Owner’s Equity Keeps DecliningOwner’s Equity Keeps Declining

Owner’s are not Getting as Much Out of Owner’s are not Getting as Much Out of their Homestheir Homes

Home Ownership is in DeclineHome Ownership is in Decline

But the Houses just kept getting BiggerBut the Houses just kept getting Bigger

Growing Commercial Vacancy RateGrowing Commercial Vacancy Rate

Rising Real UnemploymentRising Real Unemployment

Declining Real EarningsDeclining Real Earnings

Declining Automobile CompetitivenessDeclining Automobile Competitiveness

Declining GDPDeclining GDP

Rising International Trade DeficitsRising International Trade Deficits

Growing Control of US AssetsGrowing Control of US Assets

Explosive CDS ExposureExplosive CDS Exposure

Explosive Derivatives GrowthExplosive Derivatives Growth

Record Federal Reserve LiabilitiesRecord Federal Reserve Liabilities

Bubble in Financial AssetsBubble in Financial Assets

World Financial Assets

Nominal World GDP

Financial Depth(% of GDP)

llions $

Note: Asset and GDP figures have been rounded for simplicity. Financial depth percentages were calculated using nonrounded figures.

Source: McKinsey Global Institute

$12 $10

$45 $48$55

World Financial Assets vs. Nominal World GDP

High Real InflationHigh Real Inflation

Rising Long Term InflationRising Long Term Inflation

Expanding Money SupplyExpanding Money Supply

Growing Global Money SupplyGrowing Global Money Supply

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Brazil

Russia

Mexico

Canada

United States

Annual Increase in Money Supply

Money Supply as Reported

As of March 30, 2009

Source: Bloomberg

Growing Federal ObligationsGrowing Federal Obligations

2002 2003 2004 2005 2006 2007 2008

Gross Federal Debt

Total Federal Obligations*

Source: www.shadowstats.com * Including Social Security and Medicare

U.S. Government Debt vs. ObligationsT

Total Government DebtTotal Government Debt

Government Sector Debt Debt

Federal Government Sector 10 Trillion

State & Local Government Sector 2 Trillion

Un-funded Social Security contingent liabilities looking forward 7 Trillion

Un-funded Medicare contingent liabilities, estimated 37 Trillion

Total Above Government Debt $56 Trillion

Exploding Federal Budget DeficitsExploding Federal Budget Deficits

Escalating Federal SpendingEscalating Federal Spending

Gold, Silver and PlatinumGold, Silver and Platinum

Thank YouThank You

David ChapmanDavid Chapmanwww.davidchapman.comwww.davidchapman.com

CYCLES and TRENDS

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