We live in wonder, and blaze in a cycle of passion and apprehension.


The idea that the Royal Mail Ship (RMS) Titanic, was "unsinkable" was advanced by newspaper and magazine articles as well as by advertisement materials from the shipping company. The widely circulated articles detailed the design of the liner and its technologically advanced safety features.  Humans had conquered the sea and the elements with their latest advancements.

Titanic, a British luxury passenger liner that sank on  April 14-15, 1912, during its maiden voyage, en route to New York City from Southampton, England, killing about 1,500  passengers and ship personnel. One of the most famous tragedies in modern history, it inspired numerous stories, several films, and a musical and has been the subject of many scholarships and scientific speculation.

Man's folly is to assume that scientific advancement and achievement have somehow defeated the cyclical nature of business and life.  Our big wave surfer in our masthead is harnessing the sea, never attempting to defeat it. The Old Testament advises on the cycles of life Ecclesiastes Chapter 3.

There is a time for everything, and a season for every activity under the heavens:2 a time to be born and a time to die, a time to plant and a time to uproot, 3 a time to kill and a time to heal, a time to tear down and a time to build, 4 a time to weep and a time to laugh, a time to mourn and a time to dance,

The above passage from the NIV version of the Bible is often quoted. It describes the seasons or cycles of life.  A time to plant and a time to uproot.  Peaks and troughs in human activity are synonymous with nature.  These same peaks and troughs that appear in life also populate commerce,  international trade, and economic study referred to most often as the business cycle.

The National Bureau of Economic Research (NBER) determines the business cycle chronology—the start and end dates of recessions and expansions for the United States. Accordingly, its Business Cycle Dating Committee considers a recession to be "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."(1) Business cycles can persist for months or even years.

The idea of a micro-business cycle or long waves is a concept that was introduced during the Russian Communist era by a sociologist economist, Nikolai D. Kondratieff. He noticed that agricultural products and copper prices underwent long-term economic cycles that he believed to be a result of technological innovation and periods of evolution.  Big macro waves.

Kondratieff first introduced the concept of long wave theory in his 1925 book, “The Major Economic Cycles.” Later in 1939, another economist, Joseph Schumpeter,  who coined creative destruction suggested naming the long waves “Kondratieff Waves” in honor of the Russian economist’s work.

The Kondratiev Wave as Conceived

Nikolai Kondratieff was a Russian economist who is best known for suggesting that capitalist economies experience long-term cycles of boom that are followed by a cycle of depression; the cycles are now referred to as “Kondratieff Waves” or “K-waves.” His initial professional work was focused on the areas of agricultural economics and the problem of food supplies.

Kondratieff studied at the University of St. Petersburg and the Agricultural Academy of Peter The Great. He was also the founder and director of the Institute of Conjuncture in Moscow. While at the Institute of Conjuncture, Kondratieff authored several long-cycle articles and books. In 1922, he published “The World Economy and its Conjunctures During and After the War,” which marked the start of his writings about long cycles.

Kondratieff also authored “The Major Economic Cycles” in 1925, a book that expanded his view on the theory of major cycles. However, by this time, Kondratieff, who favored a partial market economy, had fallen out of favor with Stalin. He lost his position as head of the Institute of Conjuncture in 1928 and was arrested and imprisoned in 1930 during one of Stalin’s many purges.

A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis (2012)

In 1938, Kondratieff was subjected to a second trial during Stalin’s Great Purge and sentenced to another ten years of incarceration. However, the 10-year sentence was pointless, as he was executed by a firing squad on the same day he was sentenced. A year later, the wave cycles were renamed “Kondratieff Waves” in his honor.

Already Kondratieff noticed that “during the recession of the long waves, an especially large number of important discoveries and inventions in the technique of production and communication are made, which, however, are usually applied on a large scale only at the beginning of the next long upswing” (Kondratieff 1935: 111, see also, e.g., 2002: 370–374). Notice the expansion of loans and broad money supply since 1870 below. This rise since the 1950s marks a very long march.  It is reasonable to see a down cycle in total loans and broad money supply.

Macrofinancial History and the New Business Cycle Facts

Looking at the real house prices since 1870 above sees home prices tracking money supply and loan growth. A cyclical downturn would put pressure on home prices and a big portion of the overall US economy.

The advanced economies have become more financialized over the last 150 years, and dramatically so since the 1970s. Never in the history of the industrial world has leverage been higher, whether measured by private credit to the non-financial sector relative to income as we do in much of the paper, or relative to wealth as we do for a more select sub-sample of economies.

Òscar Jordà, Moritz Schularick, and Alan M. Taylor combined to study big economic cycles, "A stark fact of our recent past, the “financial hockey stick,” is a key feature of history that is exposed by the new data set we introduce in this paper. But beyond this, the new data can help expand the catalog of available business cycle facts to a much longer time frame, a wider range of countries, and a richer set of macroeconomic and financial variables. Derived from an arduous, multiyear collection effort, the data can help to further our progress toward a new, quantitative, macro-financial history of the advanced economies from which we can derive new business cycle facts. The new facts seen here have significant implications for macroeconomics, probably too many to discuss individually, with many more yet to be discovered by others interested in exploring our new data."

On Friday, May 20, 2022, the Dow Jones Industrial Average recorded its eighth straight week of declines, its longest such streak since 1932. The S&P 500 flirted with bear-market territory.

Excerpted from the article: The Market Is Melting Down and People Are Feeling It. ‘My Stomach Is Churning All Day. by Justin Baer WSJ

My point is that in a long down cycle, 126 days (as of June 21, 2022) is just the beginning.  Plus investors should be prepared for rallies in a down market.  Bull moves in a bear market are very quick and commonplace.

Take a few minutes to read my last post on Future Value, it feeds the narrative of believing this stock market down cycle is going to be big, deep, and protracted.

My treatise on long business cycles is meant to lend perspective, to inform and to educate, not frighten.  Markets, economics, and weather move in cycles. It is a fact of life.  It is extreme hubris for us to believe we have defeated the business cycles.  Royal Mail Ship (RMS) Titanic, was not "unsinkable".  It was hubris to believe otherwise.  As with big wave surfer in our masthead.  We have to learn to surf the vicissitudes of business, economic, and market cycles.

Until next time.  Travel safe.


1. National Bureau of Economic Research. "The NBER's Recession Dating Procedure."

2. Òscar Jordà, Moritz Schularick, and Alan M. Taylor Macro-financial History and the New  Business Cycle Facts, Federal Reserve Bank of San Francisco and University of California, Davis University of Bonn and CEPRUniversity of California, Davis, NBER, and CEPR (2017).