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Posts Tagged ‘economic cycles’


Peter Baxter is the sole author of this site and has worked in the securities industry for over twenty five years serving as a broker, investment banker and consultant in many areas of the capital markets. While in college at Georgia State University in the early 1980’s he was introduced to the K-Winter proposition and found it as much endearing as it was confounding. Perhaps his unusual interest was grounded in the extreme cycle pivot then underway at the time, one that ushered in the demise of hard commodity assets to paper assets that gave way to the longest and strongest bull market in history for stocks. He surmised that economic cycles really did matter and pondered the timing and magnitude of the next reversal.

Since then from time to time he found that odd sounding theory tugging at him in the back of his mind, but largely ignored it until recent years. His renewed interest in this obscure, far flung theory came from the need to reconcile his rationale for the lack of divergence in competing asset classes evident after the bust. Expecting an inversion from paper assets to commodities, he was puzzled to see both asset classes move higher together from 2003 until 2007. Several forces combined to create this conundrum- low inflation from the productivity gains of globalization and technological advances, demographic shifts causing worldwide GDP to surge, unprecedented credit expansion brought about by the Fed, and the evolution of securitization on Wall Street, among others. These forces created enormous paper wealth from stock and home price appreciation yet seemed to defy previous cycle patterns in that these competing asset classes were both appreciating while debt loads soared to historic levels in both the public and private sectors.

Upon revisiting the Kondratieff Wave theory, he found some answers that seemed to account for this divergence. The K-Wave theory holds that successive economic cycles can carry over some degree of excess from previous cycles that accrue over time and compound from each successive cycle to create ever larger boom and bust outcomes. During this autumn cycle phase in the K-Wave theory, accruing excesses can hide in plain sight or be rationalized by the market as inconsequential but once revealed may be quite daunting. Since the autumn phase gave way to winter in the fall of 2007 few have bothered to recognize the significance that these economic super-cycles have to the development of the current global financial crisis. The author is as sure as ever today that this theory, based on the naturally recurring forces of the universe, may indeed provide the best possible lens through which we can view, understand and cope with the evolution of today’s complex and volatile financial markets and global economies.