Assets, Demographics and the Kondratieff Cycle

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RayTomes
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Assets, Demographics and the Kondratieff Cycle

In the 1970s I first began making computer models to udnerstand and predict economic events for businesses. Although I had not started with any idea that cycles were a way to do this, cycles in the data jumped out and showed me that this was the way to understanding what was happening. As well as a number of shorter cycles in the range of 3 to 9 years in period, there was one very long cycle of about 50 years which was my entire time-series span. When I began to read the literature on cycles I found that these cycles had all been discovered before and were generally given names of the discoverers. The long cycle was called the Kondratieff cycle after its discoverer in the 1920s, although there had been some prior mentions of it. The period is often given as 54 years. There is a weather / climate cycle given as 53 years by another Russian, Chizhevsky and we may consider that climate plays some part in driving the cycle.

Using that cycle I was able to make much more accurate predictions than the NZ (New Zealand - where I live) government and economists. In particular I recognized that the high unemployment and other serious conditions that had being going on from 1974 to 1978 would continue for some substantial time longer than economist said.

At that time I realized that the Kondratieff cycle was not just a cycle in prices (or in weather) as had previously been recognized. It was also a cycle in demographics. Here is an article that I wrote some years back - The Cause of the Kondratieff Cycle. This had been my understanding from the 1970s until recently. I won't quote that whole article here, but people are most welcome to quote parts of it here if they have comments or questions.

It has always been my view that economists and governments paid far too little attention to demographics. The fluctuations in birth rates quite clearly follow the Kondratief cycle. There were low birth rates in the 1930s and 1970s-1980s when depressions occrred. There were high birth rates in the early 1900s and 1950s when healthier economies prevailed. The birth rate has picked up a little over the last decade or so as predicted. We need to be aware that this is superimposed on a generally declining birth rate due to better education and longer life expectancy and especially reduced infant mortality.

I have not been expecting the next Kondratieff wave downturn for another 20 years based on the previous two with multiples of 53 years added to them. My main focus has been on the difficulty of absorbing demographic lumps into the workforce, of providing them with homes and essential services because these things draw existing production away from consumption to capital stock production. I was always aware that dependant population of children and the retired were centred approximately one Kondratieff cycle apart so that the two dependencies hit peaks together.

Chris Martenson has emphasized the lump passing into retirement as very important. Many people have realized that this is a problem with no easy solutions. However until now I had always thought that the next depression would be caused by the next birth rate lump coming along which is a long way off still.

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pleaseremoveme
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Re: Assets, Demographics and the Kondratieff Cycle

What is the correlation before the twentieth century? Are there any statistics on that?

Cycles are typical of linear dynamical systems, but it would suprise me if such systems accurately described our economy.

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RayTomes
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Re: Assets, Demographics and the Kondratieff Cycle
woupiestek wrote:

What is the correlation before the twentieth century? Are there any statistics on that?

Cycles are typical of linear dynamical systems, but it would suprise me if such systems accurately described our economy.

I don't have enough data before the twentieth century to answer that.

There are strongly significant cycles found in all long time series studied. That includes economics, commodities, animal populations, weather, history, wars, etc etc etc I recommend Edward Dewey's "The Case for Cycles" as an excellent overview of the subject. http://www.cyclesresearchinstitute.org/dewey/case_for_cycles.pdf

 

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Dogs_In_A_Pile
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Re: Assets, Demographics and the Kondratieff Cycle

Ray -

I find it interesting that some of the Kondratieff cycle intervals are also fibonacci retracement values AND fibonacci primes.

Now I am curious to see if applying Kepler's limit of consecutive quotients to the Kondratieff values also converged on the golden ratio.

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pleaseremoveme
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Re: Assets, Demographics and the Kondratieff Cycle

This is just what my bible code comment was all about: maybe any time series shows evidence of cyclic beviour on the short run. That just doesn't mean anything.

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RayTomes
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Re: Assets, Demographics and the Kondratieff Cycle
Dogs_In_A_Pile wrote:

Ray -

I find it interesting that some of the Kondratieff cycle intervals are also fibonacci retracement values AND fibonacci primes.

Now I am curious to see if applying Kepler's limit of consecutive quotients to the Kondratieff values also converged on the golden ratio.

I think that the fibonacci retracements is a myth. I am willing to see actual evidence to the contrary, but my own analysis shows that markets retrace by pretty random proportions.

 

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RayTomes
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Re: Assets, Demographics and the Kondratieff Cycle
woupiestek wrote:

This is just what my bible code comment was all about: maybe any time series shows evidence of cyclic beviour on the short run. That just doesn't mean anything.

I am not referring to short term random movements loking like a cycle for a wee while. A cycle is not considered real unless it passes a proper statistical test, the Bartell's test.

I recommend you to read Edward Dewey's "The Case for Cycles" which is solid science.

http://www.cyclesresearchinstitute.org/dewey/case_for_cycles.pdf

If you want to debate on the basis of facts then please do so. If you only want to do name calling, then go somewhere else as I have no interest in people that do that.

 

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Dogs_In_A_Pile
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Re: Assets, Demographics and the Kondratieff Cycle
RayTomes wrote:

I think that the fibonacci retracements is a myth. I am willing to see actual evidence to the contrary, but my own analysis shows that markets retrace by pretty random proportions.

Ray -

I wasn't talking about the market at all.  I was talking about the value of the retracement percentages - not applying it to anything in particular.

But  you would be surprised what you would come up with if you looked at price-time performance intervals - up AND down.  Especially around the 34, 55 and 233 minute intervals.

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RayTomes
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Re: Assets, Demographics and the Kondratieff Cycle
Dogs_In_A_Pile wrote:

I wasn't talking about the market at all.  I was talking about the value of the retracement percentages - not applying it to anything in particular.

But  you would be surprised what you would come up with if you looked at price-time performance intervals - up AND down.  Especially around the 34, 55 and 233 minute intervals.

I would like to see a computer analysis with lots of data. Then I would believe it.

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Re: Assets, Demographics and the Kondratieff Cycle

Ray. Can you describe your research with an abstract perhaps?

Formal research is part of my bread and butter (what I do for a living) and my interest in your claims has definitely piqued.

This sort of stuff, for me at least, is fascinating.

Thanks.

Here's an interesting angle. Have you tried evaluating price movement using Fourier or Wavelet analysis?

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Cloudfire
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On Demographic Cycles

Hi, Ray;

I don't know the first thing about Kondratieff cycles, but I have always been impressed with the usefulness of demographics in predicting economic trends.  I made a bundle in the mid to late 1990's, thanks to having read Harry S. Dent's work on the effects of demographics on the economy . . . Incidentally, in that book, The Great Boom Ahead, he also recommended being backed out of the stock market by 2008, and anticipated a subsequent "mother of all depressions".  I was impressed with the elegant simplicity of his thesis then, and, for a girl with little interest in economics who truly abhors the process of investing, and resents every minute that I have to spend on it, I've done right well by keeping his principles in mind.  This isn't to say that there aren't many other useful and more sensitive indicators of market direction, but, since I never wanted to make my life about investing, this background has served me quite well.

I'll give your article a look . . . Funny this should come up just now . . . I was just engaged in a backlines conversation about the ancient concept of saecula, and it's influence on economic and political events.  Saecula was a term for the period of time required for an entire population to pass away and be replaced by another, entirely new population.  It was generally held to be about 90 years, at that time.  It has been my personal theory that certain events only occur once per saecula (which, in modern times is usually translated from the Latin as "age"), because the errors and experience of the previous population must be forgotten for the event to be repeatable.  This, and Harry S. Dent's work, are the reasons why, when things started to crump in the third quarter of 2008, I knew (or at least strongly suspected) that this could be the big one, and I jumped out of the market like a cricket out of a frying pan.  Once again, awareness of demographic cycles served me well . . .

Of course, 2009 is only 80 years past 1929 . . . Though it might seem superficially apparent that the saecula would lengthen in our modern age (pun intended) of lengthened life spans, we're also living in an age when oldsters are relegated to the armchair and the golf course.  The wisdom of elders is rarely valued anymore . . . as manifested in the average age of economic and financial commentators on the mainstream television news.  It's amazing to me that they'll trot out some hottie who looks like she just got out of college to hold forth about the economy.  At any rate, I suspect that certain cycles can now repeat earlier, as the warnings of our oldsters are usually ignored.  As evidence, I offer the eye rolling reactions and ubiquitous jokes that baby boomers used to make about their parents' discussions of the Great Depression.  (Notice the past tense).

It seems simple to me . . . there's no getting around the fact that, looking past all the electronic noise, economies are made of people.  So, demographics count . . . big time

And that's all I have to say about that . . .

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