The Characteristics of Autumn Investment Cycle (start of last autumn cycle was April 12, 1982 ended January 14, 2000):
- Confidence level: increasing confidence, extreme confidence and then euphoria in the markets and business cycles. “Euphoria” is defined by the dot.com market of the late 1990′s.
- Inflation level: falling throughout the period. Although inflation in prices rose to some extent during this period, wages and asset value “kept up” with inflation (and most of all, the price of debt) and in some investments overtook it.
- Credit level: massive increase in credit, especially to the consumer. I think we all realize the growth in the US was driven by the creation of credit and thus debt to the consumer. However, income rose enough to pay off debt and thus create more debt and the cycle continued.
- Interest rates: interest rates fall during this phase. Because of the wide growth, credit is cheap and available to all. During this time, interest rates do not need to be brought artificially low by government as growth and expansion sets the rate.
- Best investments: stocks, bonds and real estate. All these investments did very well during this period, surpassing inflation.
- Indication of season change: bull market peak for DOW and bottom for gold. In inflation-adjusted terms, the DOW peak was 1-15-2000.
The Characteristics of Winter Investment Cycle (start of the winter cycle was January 15, 2000):
- Confidence level: concern, then, fear, panic, and despair. We are between concern and fear right now. By the end of 2010, we will be in full fear mode.
- Inflation level: fall of inflation quickens into outright deflation. The government is trying hard to fight against this. We are in stagflation at best right now. We will have inflation in prices because of a currency crisis, not economic growth. We are experiencing a deflation in debt (or credit). As discussed above, groovygirl believes we will experience a hyperinflationary depression, defined as a hyperinflation in prices and deflation in debt causing a contraction in economic growth.
- Credit availability: following credit crunch, virtually, no credit. We are in credit crunch mode right now. It will continue to freeze and then disappear. The only credit available will be government mandated.
- Interest rates: fall in credit crunch, then rise, then fall much lower. We are in the first falling mode right now. For housing, I don’t think they will rise again as the government will mandate it to try and keep the housing market afloat. However, the rate of return on bonds will rise (as this is the only way they will sell) and this rise will affect certain sectors of business. Mainly, it means, no growth and no investment.
- Best investments: gold, cash, and then also bonds after credit crunch. (Because we have a completely floating fiat currency system in the world now, “cash” will be better held in some currencies more than others or precious metals.)
- Indication of season change to Spring: bottom in DOW. Remember, we will have a currency crisis and hyperinflationary depression (deflation in credit/debt availability and inflation in prices/expenses). It is possible to have a DOW at 30,000 with no additional real value. The stock market will continue to lose value throughout this season. A good stat to judge a low in the DOW with the fiat Dollar gimmicks taken out is the gold/DOW ratio.
