31 January 2011

The Four Seasons of the Economy

For those of you interested in Cycle Theory and in particular the K-wave named after its founder Nikolai Kondratieff (4 March 1892 - 17 September 1938) you can listen to Paul Gambles on the Money Channel, UBC channel 178, Monday to Friday this week at 10 p.m. to explain what is behind this famous theory invented by the Russian in the early twentieth century. Paul will also be talking on other financial issues impacting the global economy.

But as a brief summary to re-jog your memory, the K-wave consists of four primary seasons of Summer, Autumn, Winter and Spring and basically states that all economies moves through each of these seasonal cycles in corresponding order. 

The distinguishing features of the typical summer cycle are growing confidence leading to a pick-up in inflation and credit expansion and price increases in real estate, commodities and precious metals.

Autumn is where confidence turns into euphoria and inflation beginning to fall along with interest rates with stocks, bonds and real estate outperforming.

In winter, concern and panic starts spreading through the economy leading to outright deflation and credit crunch. Rates fall much lower and gold, cash and bonds outperform.

Finally, we have spring with its fragile confidence and inflation slowly returning. Rates begin to rise from very low levels as well as stock prices and real estate.