I am in the process of reading “The Sale Of A Lifetime,” by Harry Dent, and the first few pages of the book presented some interesting information on how to predict economic bubbles. This blog post is going to share that knowledge with you, plus some other interesting things.
You can predict the future by looking at the past, specifically cycles. Cycles make the world go round, literally. The sun rises in the morning and falls in the evening, every day without fail. We go from fall to winter to spring to summer, every year. What about the alternation of generations, or sleep, or ice ages… Pretty much everything we live in is a cycle – and so is everything we do and see. Humans pride themselves on being different and unique, but cannot outrun the fact that they are ruled by cycles.
When we compile data on major numbers of humans we begin to see even bigger trends/cycles, no matter how ‘unique’ we are. The average household peaks in spending at about age 46 (data sourced from the book, originally census data). Using data, we have insights into some ridiculous figures, such as potato chip consumption peaks at age 42.
Predicting Future Events Using Cycles
Harry Dent lists a few major cycles that provide us insight into our future on page 14 of his book. I’m going to list a few for you and go into deeper detail on each because I find this concept extremely interesting. Then, we’ll get into predicting the economy.
- 250-Year Revolution Cycle
About 250 years ago, the American Revolution occurred. A cycle before that, in the 1500’s, Martin Luther started the Reformation. A cycle before that was dubbed the “greatest century,” because the 13th century was one of “major cultural highlights of enormous importance“. Interestingly enough, this cycle follows an astrological cycle – Pluto In Capricorn. We are now due for another cycle, probably relating to technology.
- 165-Year East/West Cycle
Dent writes of a 165-year cycle in which power switches from East (Europe) to West (U.S.). There isn’t much backing evidence to his statement, but the IMF states that every 500 years, there is a geopolitical power shift moving east to west or west to east, and as of 2012, has said that we are due for power to shift back east.
- 5,000-Year Civilization Cycle
Since the Agricultural Revolution in 8000 B.C., a major event occurs. In 3,000 B.C., civilizations start using record keeping and working with metals. Now, in 2000 A.D., we are due for another cycle, probably having to do with electronics/tech.
- 500 Year Mega Innovation Cycle
Dent states that “inflation rises and peaks every 500 years. It did so in 1154 and again in 1648. It’s due to peak next around 2150”. Technology also follows a 500 year innovation cycle, peaking now with computers, jet travel and nuclear power. In the previous cycle we also experienced a massive boom in technology – this one being called ‘the Capitalist Revolution’.
While these cycles don’t allow us to predict up to the second, they do give us a pretty good view of whats going to happen in our future. Now, lets see how cycles (short-term compared the above ones) will allow us to predict the economy.
The Economy Is Cyclical
“Our stock market … has peaked every 39 years in the last century … commodity prices peak every 30 years, and boom/bust cycles peak around every 10 years.” – Harry Dent
These facts alone can help you time the market, but they just get you to a ballpark figure to try to time the market – but judging when the next boom/bust will occur down to the day requires you to understand bubbles and how to find them – pretty much what Dent’s book is about.
Another interesting principle to use when trying to predict boom/bust cycles (again a ballpark number, accurate to around 1 year), is a principle called the Kondratiev wave, which follows the below diagram:
Our economic system follows 4 seasons, just like in nature. Spring sees expansion, summer sees a boom, fall begins to cool down, and winter falls into depression. Each cycle takes 40-60 years.
Kondratiev’s model works, and has seen four cycles:
So, if we are to follow this model into the modern-day economy, by all accounts, we should have seen an economic downturn already (bigger than ’08), but we haven’t because we continue to try to manipulate the economy for only growth. Due to the manipulations, we have seen crazy growth (see below):
But, in today’s current economy it is hard to predict the next bust because everyone only wants to see continued growth. Unfortunately, with each point we grow, the further we have to fall. So, while we can use cycles to figure out when the economy will move, it isn’t that accurate, especially with this crazy bull market we’ve been in for the past year (or 17 years on a larger scale). To accurately predict a fall today, you’ll need to know bubble analysis and warning signs – something Dent writes about in his book.
I will be reviewing his book at length in an upcoming blog post, but I highly suggest that you read it ASAP, as it provides extremely valuable information. Buy it so you can margin/post-it note – there’s a stunning amount of information in this book.
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