The economic long wave is a boom-and-bust cycle that drives the global economy, first discovered by Russian economist Nikolai Kondratieff in the 1920s. Kondratieff was researching debt, interest rates, production, and prices when he uncovered the economic long wave. The ideal Kondratieff long wave cycle (K-wave) is 56 years in length, though it can vary, running longer or shorter in Fibonacci ratios relative to the ideal duration (between five 11-year sunspot cycles and three 22-year Hale cycles).
56 year cycle in commodities, bonds, wages, and foreign trade.
The current long wave is of the extended variety and began in 1949. Current analysis suggests that this K-wave will end in 2013, running eight years, or 14.5%, longer than the ideal 56-year duration, in accordance with a Fibonacci ratio.
The long wave, the long wave seasons, and 16 Kitchin cycles.
Harvard economist Joseph A. Schumpeter, author of Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, believed that the economic long wave is the single most important tool for economic prognostication.
The ideal K-wave spans 56 years and is divided into four 14-year seasons, each consisting of 4 Kitchin Cycles (approximately 42 months each). Each Kitchin Cycle is further broken down into three Kitchin Thirds (about 14 months each). Within the Kitchin Third Cycle, there are three Wall Cycles (each lasting 20 weeks or 142 days), and the Wall Cycle is further subdivided into four Quarter Wall Cycles (approximately 35 days each). These cycles, often aligned with Fibonacci ratios, give rise to recurring patterns in financial markets and business trends.
The current long wave is now in the Kondratieff Winter season. Most investors wish they had access to this long wave season chart in 2007. Every long wave has four seasons, just like a year. The approximate length of a long wave season is 14 years, though they can be shorter or longer. Each season typically contains four Kitchin cycles, with an ideal length of 42 months. However, long wave seasons can have fewer or more Kitchin cycles than the usual four.
Kitchin Cycles: Joseph Schumpeter concluded that every long wave was made up of 18 smaller business cycles, or Kitchin cycles. In more recent years, with more sophisticated charting technology and market analysis, the research conclusions of market analyst P.Q. Wall—that the long wave is made up of only 16 Kitchin cycles—have been validated. This is an essential distinction in cycle research.
Schumpeter’s
model of how all the cycles worked together to produce long waves
included Kitchin cycles (the regular business cycle of 3-5 years) and
Juglar cycles (7-11 years), with three Kitchins in each Juglar.
Schumpeter also wrote about the Kuznets cycles (15-25 years), but didn’t
include them in the charts above. The charts depict the flow of the
Kitchin and Juglar cycles integrated into 56-year long wave cycles. Note
that Schumpeter’s model presented 18 business cycles in a regular long
wave.
Market cycles differ from business cycles in that they are identified on an index chart, rather than necessarily in the economic data as a business cycle. However, they often correlate with the regular business or trade cycle. Every long wave appears to be made up of 16 market "Kitchin" cycles. The 16 Kitchin cycles that make up a long wave are ideally 42 months in length, though they are rarely ideal and fluctuate in length, both shorter and longer, often following Fibonacci ratios of their ideal duration. In each Kitchin cycle, there are ideally 36 dips or 36 Hurst "5-week" lows.
Kitchin Third: The ideal Kitchin cycle is 42 months, or 1,277.5 days, in length, while the ideal Kitchin Third is 14 months, or 425.83 days. A Kitchin cycle is made up of 9 Wall Cycles, so each Kitchin Third consists of three Wall Cycles. P.Q. Wall had a general rule: the third is often the last and weakest. This applies to the final Kitchin Third in a Kitchin Cycle, as well as to Wall Cycles #3, #6, and #9—the final Wall Cycle in each Kitchin Third. The Kitchin Cycle often unfolds in three Kitchin Third sections, but the Kitchin Third is not typically as distinct as the other cycles.
Quarter Wall Cycle (aka Trader’s Cycle): As the name implies, the Quarter Wall cycle reflects that the Wall cycle tends to unfold in four sections, or Quarter Wall cycles. The Quarter Wall cycle is a mini version of the long wave season. The ideal Quarter Wall cycle fluctuates in Fibonacci ratios relative to its ideal length of 35.475 days. The Quarter Wall is the critical cycle for traders. Just like the other cycles, the Quarter Wall will run shorter and longer relative to the “ideal” in Fibonacci ratios. The forecasting power of the Quarter Wall forecasting tool is often startling.
"There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures."
Julius Caesar, Act 4, Scene 3 — William Shakespeare, 1599.
"By the Law of Periodical Repetition, everything which has happened once must happen again,
"By the Law of Periodical Repetition, everything which has happened once must happen again,
and again, and again - and not capriciously, but at
regular periods, and each thing in its own period,
not another’s, and
each obeying its own law [...] The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the
earth.
Let us not underrate the value of that hint."
The Mysterious Stranger — Mark Twain, 1898.
The Mysterious Stranger — Mark Twain, 1898.
See also: