Monday, March 17, 2014

The dangers of the 4-year presidential cycle

Even if you’re not a proponent of Kress cycle theory, consider that we’re in the second year of the 4-year presidential cycle.  The second year following a U.S. presidential election year is almost always marked by increased market volatility…. 

….Maybe not in the next couple of months, but certainly by the summer we should see signs of increasing market volatility and accelerating selling pressure, especially as we head closer to the final bottom of the 60-year deflationary cycle this fall.  If China and/or other emerging market countries are experiencing turmoil (as I expect) it will likely only serve to exacerbate the volatility. 

Already we’re seeing preliminary signs of what the next global market crisis could look like.  The problems have originated in China and Russia with other countries (e.g. Brazil, Chile, Turkey) playing supporting roles.  This is very similar to what happened in 1998 with the financial crisis that rolled across the globe beginning with Asia and extending to South America, Russia and finally hitting the U.S. like a tsunami.  Few market analysts in 1998 (a super boom year) believed the “Asian contagion” would infect U.S. markets, but they were dead wrong.  It happened very quickly in ’98 with most of the damage occurring in July through September – the final “hard down” phase of the 4-year and 8-year cycles. 

Again, this summer the 4-year, 8-year, 10-year, 12-year, etc. cycles through the 60-year cycle will also be cascading into their final bottoms around late September/early October.  It would be surprising indeed if the financial market somehow emerged unscathed by this crescendo, especially given the fragile state of the global economy.

[Excerpted from the Mar. 14 issue of Momentum Strategies Report]