It's no secret that Robert Prechter's persistently bearish bent since the early 1980's created a whole amateur underclass of market bears and pessimists who have made internet chat sites their home. Less well-known is the fact that early in his public career Prechter accepted the traditional interpretation of the Kondratieff Long Wave cycle. In the second edition (1981) of Jack Frost's and Prechter's "Elliott Wave Principle", the "orthodox" Long Wave schematic chart is presented (page 148) with the LW inflection peak said to be early 1970''s, the top formation "plateau " end in the early 1980's, and the final low scheduled for the early 2000's.
Here it is in Prechter 's own 1979-81 words: "As we interpret the Kondratieff cycle, we have now reached another plateau, having had a trough war (World War II), a peak war (Viet Nam), and a primary recession (1974-75). This plateau should again be accompanied by relatively prosperous times and a strong bull market in stocks. According to a reading of the wave, the economy should collapse in the mid 1980's, and be followed by three or four years of severe depression and a long period of deflation through to the trough year of 2000 A.D."
This is, of course, almost exactly what did happen, and right on the time line. The depression of the early 1980's was extremely severe for wages, employment, crude goods prices, and mining, agriculture, and oil sector devastation, and rates of GDP growth slowed dramatically and stayed far lower that they had been from the 1950's through 1970's.
Where Prechter and his legions of intellectual followers missed the boat was that "creative destruction" of modern Kondratieff Wave depressions happened earlier and far more effectively than in the credit-deficient 19th century. As soon as labor unions lost their grasp after 1980, and both interest rates and prices began to fall, a tremendous energizing of American enterprise was set in place, led by technology. The industrial heartland became the Rust Belt and Silicon Gulches, east and west, replaced it.
So while economic growth rates remained lower than they had been until the late 1970's, interest rates and crude goods prtices continued to fall to 1999 and even later for some goods and rates. The Prechterite Kondratieff folks were (and still are!) waiting for the vicious deflationary crash of 19th century dreams. But the initial crash was over by 1982. As one would expect there were further deflationary interludes through out the two decade period which followed, as in 1989-90 and 1996-99 and again in 2002. For all practical purposes, the Long Wave Kondratieff trough was in 2002, even though gold and other selected crude goods prices (oil) bottomed in 1999.
The Prechterite Kondratieff folks have come up with a panoply of reasons why gold and oil and economic growth are up: mostly focused on market "manipulation" and intervention. We began to see this remarkable rationalization develop in the gold market after 1996 when gold bugs turned deflationist and switched to market manipulation and "credit risks" as reasons for gold's bear market, never mind that nearly all commodities were down and the dollar up. I wrote a gold newsletter in the 1990's, and I was shocked to see gold bruited about by these folks as a deflation hedge while it fell by nearly 50%.
Now that gold is but a rally away from doubling its 1999 low and crude oil up seven fold, many are nervous, and my mailbox is full of deflationary ads for newsletters. No one who is bullish will deny that bull markets have to exhale and will do so after advances. Both gold and crude oil could reasonably be expected to have substantial pullbacks. But today I saw an analysis of why that may not occur.
George Slezak is a self-proclaimed "perma-bear", but he is wise enough to know when bullish times are upon him. As far as stocks are conerned, he was short for most of 2000-2002, long from the summer of 2002 for two years, and he has recently turned bullish again on stocks. George's main analytical weapon is the net hedging position of the commercial portfolio managers, but in this gold and stock analysis he is using Long Wave cycles to project much higher prices for gold after a probable pullback due to increased commercial hedging. And I agree.
Gold was a central bank fixed market for a very long time, so we have no decent price data before the late 1960's. But Slezek understands that gold went through a rolling bear market from 1980 to 1999 just as stocks did from 1929 to 1949, and surmises that the outcome will be a much longer bull market like the stock market had fr0m 1949 to 1972. This is a "bottoms up" Long Wave analysis unlike the usual "tops down" application of derived cycles.Read more about George's market approach at http://www.cot1.com/
I subscribe to his service.
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