Are You Prepared for the First of Three Perfect Storms of Business Cycles?

by Bob Bronson, Bronson Capital Markets Research. December 23, 2006

Here's our fact-based stylization of various recognized business cycles and their dynamic interaction since 1896. We know of no other attempt in any academic or economic, trade or investment management publications. See Exhibit D in our Stock Market and Economic Cycle Template, or SMECT model: [See]

Not only is the US economy going into the second and worse half of a Kondratieff Cycle (K-Cycle) Winter, which we quantify both fundamentally and technically as a deflationary economic Supercycle Bear Market Period – our BAAC Supercycles report is available on request -- but three other business cycles are also negatively converging for a perfect storm of five business cycles.

The ~ 16-year Kuznets Cycle reflects cycles in infrastructure development, which is now tracked by the National Income and Product Accounts category of fixed investment -- including residential housing – link to footnote vi. It peaked in 2004-6 and can be expected to decline into 2014.

The ~ 8-year Juglar Cycle reflects overall business cycles – link to footnote v. It peaked in 2000 and is entering the second and worse half of its decline into 2008. After a brief uptrend following its likely 2008 trough it can be expected to repeat with another decline into 2014.

The 4.0-year Kitchin Cycle used to primarily track business inventory cycles, but now also and primarily reflects the election and stock market cycle – link to footnote xiv. It peaked during the past two years and will likely decline into a 2008 trough.

The simultaneous decline of these five business cycles – the inflation and interest rate K-Cycle, the secular stock market BAAC Supercycle, the infrastructure Kuznets Cycle, the overall-business Juglar Cycle and the election and stock market "Kitchin Cycle" only occurs in an idealized triplet of two-year perfect storm periods during the final years of K-Cycles.

In the current situation, three perfect storm business cycles can be expected to occur during the next eight years, 2007-2014. The previous triplet of perfect storms were around WWII during 1942-49 and during 1890-96 just before the Spanish American War – link to Exhibit A listing the recessions that occurred during these perfect storm periods.

© 2006 Bob Bronson

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Bob Bronson | Bronson Capital Markets Research | Email