Monday, April 23, 2007

Be careful what you wish for

The Kondratieff Theory

How could it happen? HOW COULD IT HAPPEN? REALLY…HOW ON EARTH COULD IT HAPPEN? How could 99.99% of the population be walking down their street in the sunshine when tip-toeing from behind they get a tap on the shoulder? As they turn round in slow-motion they see a 1930’s style depression staring them in the face smiling. “Hello it’s me – I’m back”, says the depression. “But, but … where did you come from”, the world replies. Am I crazy? Well 99.99% of the population would think so. But what do they know. If you only do one thing today (or even this week for the busy person) read this article, read it again, and then start preparing. We are only months away from the start of the second great depression.

Posted by sold 2 rent 1 @ 10:16 AM (633 views)
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9 thoughts on “Be careful what you wish for

  • sold 2 rent 1 says:

    I’ve been playing around with my own ideas on long wave cycles for some time. I thought the cycle was 35 years for the full boom and bust secular cycle.

    I didn’t understand Kondratieff at first, as his cycle was 45-60 years so it was incompatible with my own ideas.

    As it turns out the Kondratieff cycle has stabilised at 70 years which makes it completely compatible with my own ideas.

    Looking at the peaks and troughs of the stock market that define the cycles 4 phases:-

    1896
    1907 (11 years)
    1920 (13 years)
    1929 (9 years)
    1949 (20 years)
    1966 (17 years)
    1982 (16 years)
    2000 (18 years)

    It looks like modern economic management techniques have stabilised the phases at 17-18 years each.

    The K-winter started in 2000. Why is it not blowing a blizzard?
    World central banks crashed their IRs to the floor to keep the depression at bay.

    We only have a decade left in this phase for the DJIA to move from 13,000 to 2,000 in real terms. That is a drop of 85%

    Regarding US house prices
    http://www.speculativebubble.com/images/homevalues1.gif

    Will they drop to long run average levels or will they drop to depression levels (which would be a 60% fall).

    This depression will be much worse than the last one. We have a twin bubble in stocks and property that have to be destroyed. The property bubble alone is bigger than the 1929 stocks bubble. The stocks bubble is not quite as bad as 1929.
    Does this mean that the crash in property will match the stocks crash and we may see property falling 80-90%

    The same point in the cycle last time places us in 1937 – 2 years before WWII. The war on terror is only one attack away from going to the next level. My guess is the terrorists will wait for the West to go into recession before the next strike.

    The first signs of this depression will be felt by the stock markets – probably July-November. How it actually plays out is anyone’s guess

    I look into my 10 week old baby boy’s eyes and feel like crying as the future has never been so bleak.

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  • Great post @Sold2Rent1!

    It is the end for a lot of folk.

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  • Sold2Rent1, do not worry about your son. He cannot miss what he has never had. For example, I was born in 1981 and grew up to assume that England was crap at sports and so I accepted it as the norm and it never bothered me. However, people old enough to remember the likes of Roger Bannister and the 1966 world cup football team would be really upset, a fall from grace.

    Your son will just assume that a bowl of porridge for dinner every day and purchasing crap products, known as “the people’s products” to help the local UK economy is just a normal part of life.

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  • While I agree that I think the economy is on shaky ground due to the housing bubble, I think your theory would be a lot more credible if you stopped talking in terms of certainty and accepted it as a theory, rather than prophecising.

    Your mention of terrorists is also flashing my crackpot alarm.

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  • I tend to agree with rich. It seems a bit ridiculous to expect the world economy to follow a regular pattern when the timescales are so long. The world is a much different place now to how it was in Kondrattieff’s day, so at the very least I would expect his cycle to run at a different speed nowadays – although the undelying idea of a cycle is probably ok. But I think Sold2Rent you are being too deterministic. Economic theories are just ways to explain things after they’ve happened, they are not any good at predicting the future. Economics has become something of a science in recent years but really it is mostly a load of rubbish.

    Also you have forgotten that NuLabour promised to eraticate boom and bust so you’ve got nothing to worry about.

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  • “Excesses of an unpopular war, along with fiscal liberalism, cause popular reaction toward stability or normalcy. A mood of isolationism permeates . The plateau period generally lasts seven to ten years and is characterized by selective industry growth, development of new ideas ( both technological and social ) and a strong feelings of affluence, terminating in a feeling of euphoria. The inflated price structure from the primary recession, along with the desire for consumption, produces a rapid increase in debt. Eventually, wealth consumption expands beyond all practical limits, and economy slips into a severe and protracted depression.”

    It’s like he’s describing Britain right here and now!

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  • Shipbuilder says:

    These wave theories are always identified in retrospect. Past events have to fit the model and I agree that, on the surface, they fit this one in retrospect. However, that is the key, IN RETROSPECT.
    Yet S2R1, you are saying that the 2000- depression phase has been ‘kept at bay’ or disguised by low IRs.
    Surely then, when looked at in 20 years time, it will not fit the wave model.
    The very establishment of the model depends on the periods being clearly identified. If the current period does not fit the depression phase, by the very definition of how the wave model is identified, we are not in the depression phase.
    If we are not in the depression phase then the correction will be less severe than you predict. Boom and bust are inevitable as night and day, but I am sceptical of these methods to try and predict it.
    Unfortunately, hyping it in this way gives this forum a David Icke-level of credibility in the casual observer’s eyes.

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  • Don’t bring me into it.

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  • sold 2 rent 1 says:

    OK, I might have been a bit over dramatic with the initial posting.

    As I said 99.99% of the population will think I am a crackpot for saying this. That percentage will come down to 99.98% if I polled the people on this website. (HPCers are more bearish)

    Here is another way of looking at it. Imagine how you would convince a BTL landlord that prices of property don’t go up forever. He can’t see your argument and you don’t understand why.

    You explain to him about booms and busts in the economic cycle and give examples of 1974, 1981, 1990. He tells you things are different this time. You tell him people always think that and they are always proved wrong.

    One of the primary reasons why the BTL landlord can’t see your point of view is that things are good for him and he doesn’t want to imagine bad times ahead. Quite often the argument of “The government wouldn’t let houses crash again” is used. Governments don’t have that much control.

    Now let’s expand the argument to the next level. I see any person who doesn’t understand the power of the K-wave the same as you would see that BTL landlord. The arguments are the same (slightly more complicated) but over a bigger timescale and with more severe consequences.

    I can offer detailed evidence of this k-wave happening over the last 2 centuries. You tell me things are different this time. You tell me that central banks around the world wouldn’t let a depression happen again. I say maybe central banks don’t have that much control over the economy.

    You think that central banks can drop interest rates, have a small recession and get back to another huge credit expansion can go on forever. When you think about it your arguments to discredit the K-wave theory are as flawed as the BTL landlord’s view that prices can only go up.

    The cycle has to go back to beginning. You can’t just keep expanding credit to infinity.

    The fact that depressions are not very pleasant at all doesn’t stop them from happening. Most of you hadn’t budgeted for a depression. A nice short recession and a 30% drop in house prices fitted the bill perfectly. Unfortunately what we want and what we get are 2 different things.

    I don’t think I will convince anyone (except ivmreader) just like the average HPCer fails to convince the average BTL landlord.

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