I found this chart today. Once you know what to look for, you will see examples of the Kondratieff Wave in many price, growth, incomes, interest rates and other data series.
Some observers will object that it was all due to geo-politics. But note how the drilling rig count rose dramatically to meet demand and then fell off even more dramatically once demand was met by supply.
Then finally in 1999, when the rig count was at its lowest due to nearly two decades of downtrending prices and plentiful supply, a slight increase in demand in China and elsewhere exposed the parlous state of the whole oil supply infrastructure, and prices began to rise once more.
I needn't, but will, point out that all investors know that gold made its high also in late 1980 and its low in 1999 with a secondary or double bottom in 2001.
Long Wave websites and many books used to discuss the "why" of the Long Wave. The reasons advanced were many, including astrology and numerology, politics and sociology, but I think a simple argument for supply and demand can be made. When essential commodities are scarce, it takes a long while to get them geared up again.
First there is a period of some years before the new rising prices are taken as other than a momentary aberration in a bear market. Price didn't go down in a linear manner for the prior 20-30 years, so maybe this is merely another rally which will fizzle and die like the others did.
Then after five or more years there is realization or recognition that something must be done about shortages: by governments, industries, banks, labor and most certainly by end users and consumers. The financing of massive new supply infractructures to relieve the shortages takes time, and the phases of it are many. There are always a few projects that are ready to go, but most are not. For many crude commodities there begins a new round of the acquisition of land for exploration, the exploration itself, the proving-up of the ore body or the gas or oil field, the financing of production and ports and pipelines and ships.
All this takes a decade or more in real market time. Engineers and laborers are in tight supply and must be trained, often housed, and paid. Government gets into the act by demanding higher payouts, taxes or outright expropriation, as we see. Environmentalists of the urban western type, as well as people living near these massive new projects, want their share an d/or try to slow the projects.
As economic growth increases, demand rises, adding to the price pressures. Tire prices for machinery and the machinery itself rise. Labor begins to flex its muscles to share in the largesse. After 15 years the new productive structure has still not caught up to demand. Consumers/voters are angry and legislatures punish producers for their profits. These events have little effect upon projects in the works or on the drawing boards, due to long lag times between deciding on a project and getting it into production. But gradually producers begin to pull in their horns a bit on new projects as many projects turn out not to have been as profitable as they looked, even at new higher prices.
This in turn puts more pressure on prices as investors become aware of producer reticence and shortages. Prices surge higher, and reticence is finally thrown to the winds as many new projects are undertaken at whatever the cost.
At last prices begin to show signs of stabilizing. Perhaps higher prices have finally inhibited demand, or supply has finally been able to satiate demand. Cost overruns on late projects are legion. Profits are dropping a bit.
The long down cycle is beginning with prices at historic highs, unemployment very low, wages high, GDP high and tax receipts even higher. It will take a long time for late projects to be completed, and when they do they will be selling into a saturated market at lower prices. Some will think this initial decline is just a minor correction in an even longer bull market, and this idea will persist for several years. Many people won't remember or even be aware of the last down wave. It will take a while to close down unneeded projects and get rid of them, or go through bankruptcy.
Well you get the picture. This is what happens in most crude goods categories: commodities that are necessary for new infrastucture and production, transportaion, utilities, homes, industrial buildings. And all of these have to be financed. So interest rates go up in the growth half of the cycle and go down in the slower growth phase when projects dry up. And so it goes.
So we know the commodity cycle and the bond cycle. But what about stock equities? That's what most poeople invest in.
I'll leave that mostly for another time, but here is a brief preview. In the growth phase of Kondratieff, stocks of productive companies, and services for them, do well as well as do commodity stocks. In addition many companies, whose market domination permits it, are able to raise prices a bit faster than their expenses rise. They do well too. These companies may not all be domiciled in your home market.
The best of the growth bull market is the first half: ten to fifteen years. After that interest rates and prices of supplies and labor begin to cut into profitability, and the stock market has a harder time. Toward the end there is almost always a rather severe bear market or two.
Notice that this runs counter to the everyday wisdom that rising interest rates are bad for stocks. Eventually that is true, but "eventually often takes quite a long time", depending upon the company and the industry and nation.
Also counter to conventional wisdom, many of the best bull markets in stocks occur during the slowdown of growth phase of 20-30 years when comomodity prices and interest rates are declining due to reduced demand and more than adequate supply: 1932-1946 and 1982-2000 are great examples. More on all this another time.
But do not be foooled into thinking that rising rates and prices always mandate a serious bear market in the near future. Reflation and inflation are good for stocks for a long time until inflation gets "too hot". Although we can have bear markets and mini-crashes before inflation gets "too hot", the end of the current secular bull market has much longer to run than just 2002/3-2006.
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