Saturday, August 31, 2013

Don’t discount the Kress cycles

One of the biggest mistakes economists are making in their analysis of the recovery is in ignoring the impact of the long-wave deflationary cycle.  Known as the Kress Cycle, this cyclical force will largely determine the future course of the global economy in the coming one year. 

Many, if not most, economists insist that the financial market and economic recovery that has been underway these last 3-4 years will continue into 2014 and beyond.  The reasoning behind this forecast is nothing more than linear extrapolation – the classic recipe behind most economic predictions.  Conventional economists excel at simply observing a trend that has been in place for the last 3-4 years or more – psychologists tell us it takes at least three years for the average person to recognize a trend – and then projecting that trend well into the future.  This extrapolative outlook is based on a number of dangerous assumptions, one of which happens to be that the economy is cyclical, not linear.  Not surprisingly, most economic forecasts are proven wrong by future events.

If there is any truth to the Kress cycles, and my 13 years experience with them tells me there is, then next year will most likely upset the rosy forecasts of most mainstream economists.  Indeed, with storm clouds already gathering on the horizon we can see trouble spots beginning to manifest in key areas of the economy, most notably in the real estate market.  Real estate alone could upend the consensus optimistic outlook for next year.

It’s a tough road ahead for the U.S. economy as it will be forced to slog through the combined forces of the constituents of the 120-year cycle: the 60-year, 40-year, 30-year, et al, cycles.  Each of these cycles is scheduled to bottom around the beginning of the fourth quarter in 2014.