Question: “Based of the prior history of the 120 year
bottom in conjunction with the concurrent bottoming of the various sub-cycles,
do you have an expectation of the magnitude of the probable
decline? The stock market declined about 58% basis the S&P 500
into the early March 2009 low. Would the final down phase of these great
cycles be expected to at least match that decline in intensity (at least on an
inflation adjusted basis)? Or, because of QE, did the majority of the
cyclical stock market decline this time occur during 2007-2009? The
50% off type of declines occurred in 2000-02 and 2007-09. Perhaps we have one
final 50% off type of decline coming in the future.
“The one index that truly crashed in 2008 which has
not significantly recovered is the Baltic Dry Index. The May 2008 high
was 11,793 and the low in December 2008 was 663. The past year's range
was 735-2,337 with a recent reading around 1,700. The 2,000 level
appeared to be resistance from 1985-2003. The 2,000 level might be a good
indicator to focus on as representative of international trading and demand
of certain commodities.”
Answer: Unfortunately there is no way of determining
the magnitude of the decline associated with the Kress cycles. Bud Kress
himself was always the first to caution that he couldn't be held responsible
for magnitude; his primary concern was with direction. As he used to say,
magnitude is the result of cycles + technicals + sentiment.
In holding to this formula, I can't make any specific
predictions about how low stocks may go before the 120-year cycle bottom is in
later this year. You make a good observation that the severity of the
decline during 2007-09 may have taken some of the downside potential away from
this year's cycle bottom, just as the 1929-30 decline took much of the emphasis
away from the 40-year cycle bottom of 1934. However, with the emerging
markets (China in particular) a problem, we could see some serious spillover
effects as the year progresses. I suspect it won't be as bad as 2008, but
by the same token 2014 will probably be much worse than what the average Wall
Street analysts is expecting.
As for the Baltic Index, this is an excellent
barometer of the deflationary pressure being exerted by the bottoming 120-year
cycle. If this correlation holds it will probably put in its final low by
the end of the year.
