A long view of where we are economically

[dex]

If I'm reading the chart correctly we have another 8 -10 years or so before another expansion phase. We are in the secondary recession.

The average bear market is about 16 years. So if this one started in 2000 then K wave and the avg bear market is saying similar things.

From this info we should not be surprised by all the news stories to come about increases in poverty, people saving and reducing debt etc.

Kondratieff Long Wave Cycles Past and Present

"But what the Kondratieff wave is about is a study of long cycles of debt buildup and repudiation. It is not exclusively about price inflation and deflation periods. Deflation is caused in part by the debt collapse. It is also a generational thing as the next cycle of debt buildup and collapse is renewed every 2-3 generations as the previous generation that went through comparable periods dies off. The old adage that "this time it is different" means the circumstances are different, yes, but they fail to recognize that the previous period was the same in terms of excesses and therefore the end result is the same."

 

[W2R]

Actually, that could be considered to be somewhat encouraging. If we were to experience marked expansion and growth beginning in 2016-2017, that would be a lot better than if we experienced runaway, double or triple digit inflation, for example.

Oh yes, I know, I am in SUCH a cheerful, positive mood this afternoon...

 

[ziggy29]

This actually looks quite a lot like the secular bull/secular bear thing. If this bear market cycle were compared to the 1966-82 bear market, then we're probably in 1974 right now.

 

[FIREd]

Perfect! I started investing in 2000, and would like to retire around 2020. If those predictions hold true (new expansion phase starting in 2016-2018), then I will have invested my money at the best time (during a secular bear market) and retired at the best time too (at the beginning of a new secular bull market). Off course, first, I have to survive Kondratieff's phase 4 (depression)...

 

[IBWino]

Perfect! I started investing in 2000, and would like to retire around 2020. If those predictions hold true (new expansion phase starting in 2016-2018), then I will have invested my money at the best time (during a secular bear market) and retired at the best time too (at the beginning of a new secular bull market). Off course, first, I have to survive Kondratieff's phase 4 (depression)...

Ditto! Looking to retire in 2016 at age 55. I've been saving and investing pretty much my entire adult life, but I accelerated it starting about 2000 when my salary increased significantly.

 

[Bikerdude]

This period does remind me of 66-82. And I agree we are now at the 74-75 point. War winding down in Iraq (Vietnam) inflation in the pipeline. The only problem I see is we elected Regan in 82 and he cut taxes and reduced regulations. Now we are faced with increased taxes and more regulation. Old Europe is worse off than we are so that leaves the emerging markets to be the growth engine. I hope they are up to it.

 

[NW-Bound]

Now we are faced with increased taxes and more regulation...

Then, if we wait long enough, the pendulum will swing back. Hope I will live or survive financially until then. Sigh!

PS. I will not blame the government for this. The economic cycle is a scourge of society. Leaders as well as us individuals have to move with the flow. I do not blame nor expect miracle from anyone. It's just bad karma, as they say.

 

[barbarus]

I will not blame the government for this. The economic cycle is a scourge of society. Leaders as well as us individuals have to move with the flow. I do not blame nor expect miracle from anyone. It's just bad karma, as they say.

I DO blame the government/bureaucracy for this NW.

Because Greenspan tried to fight the natural business cycle and kept interest rates artificially low early in the decade to try to keep the dot-com bubble going, the economy overheated and we are much worse off.

 

[bd68]

I TOTALLY agree with Barbarus said...it is as simple as what he said.

 

[dex]

I TOTALLY agree with Barbarus said...it is as simple as what he said.

I agree also. Governments magnify problems in its attempt to avoid downturns in various areas of the economy when they occur. It can also cause the problem as it did with the expansion of the railroads in the USA.

 

[Architect]

lol ... sorry, it's funny (to me) that I was laughed at for talking about Kondratieff two years ago.


You should be careful though, I don't think Kondratieff is a good predicative tool. For example, 'Winter' has already been delayed by quite a bit. It should have hit in the late 90's - starting with LTCM and the asian currency crises (and then the dot.com bust). It didn't though, and we had the credit bubble as a false boom. You could argue that people are living longer (is it due to a generational effect?), and that modern govt. is somewhat good at fighting it (all the stimulus in 2002), which delayed the inevitable. Don't know.

At any rate, all the effort we are doing to stop a necessary downturn would only make it longer I suspect. Yes 10 years at least. Very Austrian school of economics thinking - crazy, I know.

 

[NW-Bound]

Yes, yes. I agree that Greenspan's low interest rates were one of the enablers of the current mess. But just one.

I maintain a more fatalistic view of this fiasco. Remember how Greenspan was revered, how the world hangs on his every word? The nation wanted a Greenspan. If not this Greenspan, there would be another Greenspan.

Oh, I remember reading some dissident views on his low interest rate policies. But for one published viewpoint decrying the bubble that this would create, there were one thousand other voices that wanted lower interest rates for longer, that this free cash would create prosperity. And remember all the people who directly profited from this, the loan processors, RE appraisers, the local and WallSt bankers. And as investors, we all enjoyed the rich dividends that our mutual funds paid out.

We wanted to believe. That's the bad karma I was talking about.

 

[harley]

Governments magnify problems

I don't think you needed all those other words.

 

[ERD50]

I've been trying to look at the silver lining in the case this bear is a long one.

I can get by mainly on dividends right now (DW is still working a part-year job, and probably will for at least a few more years). I may have to sell of some equities now and then, but not a lot.

So the silver lining part is, if the bear continues, I would expect a lot of things to be sold cheap. We are going to need two new cars in a few years, etc, etc, etc.


-ERD50

 

[shotgunner]

I hope you guys are right and it is 1974 all over again. In Dec '74 the Dow was 570 and peaked in Sep '76 at 1025 which was an 80% gain.

 

[tuixiu]

I'm with the "that would be perfect!" crowd in regards to the anticipated timing of our retirement.

As long as the wife and I can stay employed with an income high enough to continue saving aggressively thru what later proves to be the downpoint of a cyclical economic wave it should prove to be a positive thing down the road.

 

[RonBoyd]

For an Anti-"Doom & Gloom" perspective:

Bear Market Isn’t a Disaster for Retirees - Registered Investment Advisor

This isn’t what the conventional wisdom tells us. The CW would tell us that the older you are, the more devastating any loss. Why? Because the recovery time is short. People in their 30s, 40s, or 50s can rebuild their portfolio buying stocks at lower prices. As a result, they may benefit from a stock market crash.

A retiree, on the other hand, probably isn’t saving and must depend on the diminished value of his savings for income. Surely that’s bad news.

...

If prospective returns are higher in low valuation markets, perhaps retirees can safely increase their withdrawal rates. Research by financial planner Michael Kitces has shown that the usual 4 percent rule of thumb for initial withdrawal rates from retirement nest eggs can be increased in periods of low valuation. A typical 60/40 (equity/fixed income) portfolio, for instance, will only support a safe withdrawal rate of 4.4 percent in a high valuation market. But it will safely sustain a 5.7 percent withdrawal rate in a low valuation market.

 

[ls99]

For an Anti-"Doom & Gloom" perspective:

Bear Market Isn’t a Disaster for Retirees - Registered Investment Advisor

Ok I'll bite. So does this mean we can expect about 14% return in the next four years, per the article? Is that annually or total for the 5 years?

 

[RonBoyd]

Ok I'll bite. So does this mean we can expect about 14% return in the next four years, per the article? Is that annually or total for the 5 years?

Oh! I was thinking along the lines of "less bad" than "more great."

Either way, the loss in spending power is a lot less than the loss in portfolio value.

We don’t live with the idea of spending all our money in the next year. We live as though we were going to be around for a while because, well, we probably will be.

But hey, that's only me... I am pretty slow sometimes (most?).

 

[ls99]

Oh! I was thinking along the lines of "less bad" than "more great."

That is pretty much what I got out of the story. I'm not a doom and gloomer. Always comfortable with what I have at the moment. DW is not so easily satisfied.

 

[Architect]

This has nothing to do with the 1970's. It rhymes more with the 30's, but will be it's own variation (not nearly as bad). People must love inflation though, because they keep predicting it!

I hope you guys are right and it is 1974 all over again. In Dec '74 the Dow was 570 and peaked in Sep '76 at 1025 which was an 80% gain.

 

[Meadbh]

Let me know when the 80% gain begins, so I can RE then. Meanwhile I'll just keep DCAing into cheap stocks.

 

[Hamlet]

I think that if the Federal budget deficit really does approach the 2 trillion people are suggesting, we are going to see that inflation sooner rather than later.

This has nothing to do with the 1970's. It rhymes more with the 30's, but will be it's own variation (not nearly as bad). People must love inflation though, because they keep predicting it!

 

[NW-Bound]

Perfect! I started investing in 2000, and would like to retire around 2020. If those predictions hold true (new expansion phase starting in 2016-2018), then I will have invested my money at the best time (during a secular bear market) and retired at the best time too (at the beginning of a new secular bull market). Off course, first, I have to survive Kondratieff's phase 4 (depression)...

I'm with the "that would be perfect!" crowd in regards to the anticipated timing of our retirement.

As long as the wife and I can stay employed with an income high enough to continue saving aggressively thru what later proves to be the downpoint of a cyclical economic wave it should prove to be a positive thing down the road.

True. People still working are accumulating cheap equities. Then, as you will live into your 80s and 90s, chances are you will see another downturn like this one. So, be prepared. Will you know to go to all cash next time?

Another point to ponder is that with gummint intervention all around the globe, will their action shorten the business cycle length? I'd vote for that, as I don't want to become too old to take 3 european trips a year as I did in the last market bull run.

 

[Grep]

I think that if the Federal budget deficit really does approach the 2 trillion people are suggesting, we are going to see that inflation sooner rather than later.

I just hope my portfolio re-inflates with real dollars first. After that, I could probably tolerate some normal inflation.

It would be heaping insult onto injury to lose 20-40% of ones' savings only to "recover" with dollars that are worth 20-40% less (or worse, for ones' portfolio to not recover and have the reduced total be transformed into worthless dollars too!).