grand super cycle revisited‏

The most common perception about a GSC is the one the RN Elliott described during his discovery of the Wave Principle. In basic terms, he determined that the cycle began in 1776 with the founding of the 13 original american states. Then from the 1776 revolutionary war he roughly counted:
1776 – 1857 SC 1 and 2, resulting in the civil war 
1857 – 1932 SC 3 and 4, resulting in a world war
1932 – xxxx  SC 5
Since each rising Supercycle is about 70-80 years, a good target for a potential top would have been from 2000 onward.
Originally we had dismissed this concept due to the lack of quantitative market data. In general terms, however, recent market behaviour has led us to take another look. When reviewing our favorite market chart of all time DOW 1929-present, it is quite easy to see the cycle waves of the recent SC:
1932-1937 cycle [1]
1937-1942 cycle [2]
1942-1973 cycle [3]
1973-1974 cycle [4]
1974-2007 cycle [5]
During cycle waves [2] and [4] the market lost about 50% of its value. Even after cycle wave [5] our market has lost over 50% of its value. These are the three largest bear markets during the entire 1932-2010 time period. When these bear markets are compared to the 90% market decline of 1929-1932 they seem inconsequential. Now read this:

 
Christopher Columbus was the first European to land in the territory of what is now the United States when he arrived in Puerto Rico in 1493. The subsequent arrival of settlers from Europe began the colonial history of the United States. The Thirteen British colonies that would become the original US states, were founded along the east coast beginning in 1607. Spain, France and Russia also founded small settlements in what would become US territory. The Thirteen Colonies grew very rapidly, reaching 50,000 by 1650, 250,000 by 1700, and 2.5 million by 1775. High birth rates and low death rates were augmented by steady flows of immigrants from Europe as well as slaves from the West Indies. Occasional small-scale wars involved the French and Indians to the north, and the Spanish and Indians to the south. Religion was a powerful influence on many immigrants, especially the Puritans in New England and the German sects in Pennsylvania, with boosts from the revivals of the First Great Awakening. The colonies by the 1750s had achieved a standard of living about as high as Britain, with far more self government than anywhere else. Most free men owned their own farms and could vote in elections for the colonial legislatures, while local courts dispensed justice. Royal soldiers were rarely seen.
 
The colonists did not have representation in the ruling British government and believed they were being denied their constitutional rights as Englishmen. For many years, the home government had permitted wide latitude to local colonial governments. Beginning in the 1760s London demanded the colonists pay taxes. The new foreign taxes on stamps and tea ignited a firestorm of opposition. The British responded with military force in Massachusetts, and shut down the system of local self government in what the colonists called the Intolerable Acts.
 
After fighting broke out in April 1775, each of the colonies ousted all royal officials and set up their own governments, which were coordinated out of Philadelphia by the Continental Congress. The American Revolution escalated into all-out war. Despite local King George loyalists, the new nation declared independence in July 1776 as the United States of America. After Americans captured the British invasion army in 1777, France became a military ally, and the war became a major international war with evenly balanced forces. With the capture of a second British invasion army at Yorktown in 1781, the British opened peace negotiations. The Treaty of Paris in 1783 proved highly favorable to the new nation.
 
Prior to the Revolution the standard of living in the american colonies was equal to that of Britain. That did not suddenly all disappear during the revolutionary war. Only about 10% of the population were involved. It is clear that the GSC may not have begun in 1776. It could have begun much earlier, probably entering the 18th century when the population grew to 250,000 or more. Or even after the South Sea/Mississippi bubbles in the early 1700’s: http://www.library.hbs.edu/hc/ssb/history.html
Historically, US per capita income doubled between 1700 and 1770, then dropped only 20% during the revolution, before resuming its climb to higher levels well into the 19th century:
What if the GSC began let’s say around 1700. Then it would look like this:
1700 – 1776 SC 1 and 2, resulting in the revolutionary war 
1776 – 1857 SC 3 and 4, resulting in the civil war
1857 – 1929 SC 5
1929 – 1932 GSC collapse, resulting in a total world war
The 90% market decline of the great depression appears more in line with a GSC collapse than any of the time periods noted before 1929, and any after 1932. When
we review intermarket relationships, using other asset classes, we first compare the regular 34 year commodity cycle to the stock market. During the 1929 top, commodities had been in a bear market after a major collapse in post WW I 1920, and remained in a bear market until 1933. Then, there was a total collapse in every asset class as deflation was broadbased. The inflationary pressure of rising commodity prices, to offset the deflationary pressure of a SC, as we have now, was not present between 1929-1932. This is probably why we are experiencing, a once in a lifetime, deflation in things we want versus inflation in things we need. 
The commodity cycle, in itself, is quite interesting. Refer to chart below, bull markets:
1933-1946
1967-1980
2001-2014
Notice there were Cycle wave peaks in the equity markets around the middle of each commodity bull market: 1937, 1973 and 2007. The first peak occurred four years after it began, the next two peaks six years after. Also notice, after the Cycle wave tops stock markets went into a bear market, and then stayed in a trading range until the commodity bull market ended. What followed after that was the extraordinary bull markets of 1949-1967 and 1982-2000. The best part of the Cycle waves, Primary wave III. 
Certainly a SC top definitely creates the worse economic experience since the great depression. But they do not appear to be of the same degree. There is very little protectionism now, no gold standard to limit an inflationary monetary policy, the world is much further along industrially and technically, plus currencies flow across borders in nano seconds.
In regard to currencies, during each of the last two commodity booms the USD was officially devalued. FDR did this in 1933 when he devalued the USD/Gold relationship from $20.67/oz to $35.00/oz. Then in 1971, Nixon took the USD off the gold standard completely. This suggests an official devaluation of the USD will likely occur before 2014. In addition, no need to tell you what will happen to gold and crude over the next few years. Gold and Crude made peaks in the 1940’s and then again in 1980. The FED policy of quantitative easing will only add more fuel to the current commodity bull market. When we review US Bond prices we observe that they had been in a 27 year bull market from 1981-2008. Now they have most likely entered a multi-decade bear market, which means rates will be rising long term. Gradually rising bond yields are often associated with economic expansions, not contractions. Bond yields were gradually rising during the 1950’s, 60’s and 70’s until they spiked in 1981.
Returning to the stock market. We are already into the 28th month since the Oct 2007 top, and the DOW had dropped 54% into the Mar 09 low and is now higher. Twenty-seven months after the Sept 1929 top the DOW had already lost (high-low) 81%. Twenty-eight months after the DOW was down 82%, and after 34 months it bottomed down 89%. We are not observing that kind of time/price relationship in this market. During that thirty-four month decline the DOW wiped out 33 years of market progress all the way back to the 1896 low. Using the same time/price relationship, the market should be well on its way to the 1974 low of DOW 570, which occurred 33 years from the 2007 top, by August 2010. And, this credit driven society would be well on its way back to the Dark Ages. It appears, at least to this analyst, that if there is a GSC it likely ended in 1932. The current GSC, then, will not top until the 22nd century. There are certainly many potential implications to this scenario.
Would publicly like to thank all in our OEW group that contributed to this analysis. They were certainly instrumental in piecing together facts, figures, charts and opinions which shifted a potential scenario into a more viable probability. This was truly a joint effort! Time will judge our efforts.
 

About tony caldaro

Investor
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50 Responses to grand super cycle revisited‏

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  5. MGD says:

    Tony, the FED bought credit instruments and keeps buying bonds. I understand it now holds more than 25% of total …so in my opinion the official devaluation of the USD will likely be that the FED will anounce that they will erase the total debt from their books..thats it !!
    I have no idea what what this would mean for the economy and the rest of the world. Have you ?

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  6. Unknown says:

    No Name:I had been pondering both of your questions before your post.If 1929 was a GSC top, is it necessary under EW law for alternation to occur?Regarding the Kress cycles, I think they are fascinating. According to the book by Clif Droke, per Bud Kress\’s cycle theory, the 120 year cycle along with all of the components that make up this cycle bottom in 2014.One explanation would be that if the bounce out of a 2010 low into a 2011 high is sufficiently high enough, the 2014 low could be SC Wave 2 with perhaps a very deep tracement of SC Wave 1. With what appears to be a major debasement of the USD on the horizon once this current countertrend rally plays itself out, we may not see a nominal low in the stock market in 2014. The previous 120 year cycle bottomed in 1894. Tony, can you please tell us how 1894 or the closest stock market low to 1894 fit into the EW structure of that time period?Thanks for all your knowledge.

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  7. gls says:

    R B: I\’m not sure exactly where the cycles are. The low at 1044 was probably the 3rd five week low from the 40 week low on Nov 2.I am also counting differently EW wise than others. In early Feb I proposed the market has been working on an irregular correction from the October high. And this low recently copleted the "C" of that. I mentioned it here and another site and had no reaction so I figured it had a good chance of being correct.Also, one can say the rally from the July low has a "v" up to go. This would complete 5 waves up from July. Now is the move up a "3 or a "C".? I beleive it is a "3" as I believe the low in March of 2009 completed a major, major correction. I know this is not popular and if it fails I will be ridiculed. I think a person should only play the long side as someday the big surprise move will be a tremendous move up.In eleven days the 89th day from the October high will occur. Let\’s see what side of the trading range that day is.Another thing, Friday was a cycle day that if you close above or below that day\’s range, that is the near term trend.

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  8. Bill says:

    If this correction does not have to alternate with the 1929-1932 correction because it is not of the same degree and it is a SC 2 then how low can it go? To the level of the last corrective wave of a lesser degree?

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  9. Bill says:

    If the correction we are currently in is a correction of a SC move from the 1932 low then why are we rushing it. We have time and space to correct to the previous wave of a lesser degree [4]. The 120 Kress cycle is not due to bottom ideally untill 2014 maybe 2016. How much damage could rising crude and other needed commodities do to stock prices as people liquidate positions to support a life that no longer has the income or the safety net of government support that has been enjoyed in the past. I believe the search for a low time wise is being rushed. Time compression of market movements has always been a large problem in fitting the market to our expectation. Tony, you do great work and your ability to be willing to examine the status quo thinking and offer other opinions makes you exceptional.

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