Q: Is it possible that the Fed has postponed
the 60-year/120-year cycle bottom through QE?
A:
Mr. Kress always maintained that his cycles were fixed, that is, unchangeable
in time. To him, the 60-year cycle
scheduled to bottom in the fall of 2014 would bottom right on schedule
regardless of what the Fed was doing to prevent it. In the many years of constant correspondence
I had with Bud Kress, I believe he underestimated (with all due respect) the
power of the Fed in mitigating the long-term deflationary cycle. I agree with him that the Kress cycles are
absolutely fixed and that the upcoming 60-year cycle bottom this fall will
indeed represent the bottom of the long-term deflationary cycle. That doesn’t necessarily preclude a future
bout of temporary deflationary pressure, however, in response to the Fed’s
continued intervention efforts.
I
believe a more accurate way of describing the impact the Fed has had on the
60-year cycle is that its ultra-loose monetary policy has cushioned the blow of
deflation. Instead of runaway deflation,
we experienced only a few sporadic bouts of deflation between 1998 and
2008. Retrospectively, the previous
120-year cycle bottom of 1894 was also relatively benign. This shows that deflationary “winter” seasons
can be mild depending on the extent of monetary conditions.
Q: Have you changed your
stance on the upcoming 120-year cycle bottom?
A:
As for the equity market, while it’s true that the long-term Kress cycles are
due to bottom in late September the zero interest rate policy (ZIRP) of the
U.S. Federal Reserve has kept the stock market unexpectedly buoyant. I
still think we may see a correction in the equity market by later this summer
before the late September/early October cycle bottom, but at this point the
scenario envisioned by Kress isn’t likely to occur. Weakness in equities
has actually been bullish for gold and mining stocks this year, so perhaps the
gold sector will escape the selling pressure should we see a decline in
equities in the next couple of months.
In
retrospect it appears that the super crash predicted by Kress was the 2008/2009
crash. This crash occurred during the final “hard down” phase of the
60-year cycle (defined as the final 10% of a cycle’s duration). Ten
percent of 60 = 6, and if you subtract 6 years from 2014 you get 2008.
Therefore I think it’s evident now that the 2008 credit crisis was the
effects of the Kress Mega Cycle being felt early, but still within the allotted
“hard down” phase. This is what Bud Kress would have called a “bottom in
price before a bottom in time.”
