Economic cycles I

The ten minute mini-day times 144 reappears as the day (1440 minutes), times 144 as the twenty week Wall Cycle, times 144 as the inflation/deflation Kondratieff Wave, times 144 as the 8000 year Spengler cycle in which four mighty cultures (of 2000 years each) rise and fall.

The desire/will pendulum within a complete cycle one can be pictured as follows:

Year of Dawn: from the lairs of night herds of Southern Desire emerge and begin to timidly graze.
Year of Noon: grown bold, the herds of desire graze everywhere.
Year of Sunset: the answering predators of Northern Will begin to trim the ranks.
Year of Midnight: the predators of will dine en masse in a royal contest for turf.
We derive these moods from only two sets of contraries: desire vs. will and joy (superfluous energy) vs hunger or gloomy revenge (lagging energy). These will modulate into a fourfold sequence such as that of the Years above, shown here as four phases of the (48 to 64 year) Kondratieff Wave.

Of course these are driven by economic events which account for cycles in the equity markets.  In theory equity markets anticipate economic cycle.

The three most important cycles are:

1. the 3-4 year Kitchin inventory cycle,
2. the 7-10 year Juglar business investment cycle and
3. the 15-18 year Kuznets cycle in housing construction / prices and associated consumer spending.

We have mentioned these cycles in the past, but we have referred to the Kitchin Cycle most often.  The PMI reports tell us we are seeing a decline in manufacturing.  Freightliner, Paccar, Cummins, Whirlpool and others have announced cutbacks. 

JD Hunt the largest trucker just reported a stinko quarter.  Fedex issued negative guidance.This implies that inventory levels are high and retailers/merchants are ordering less as they try to work off inventory.  Also, import levels are not increasing as the Eurozone is in a recession and China is showing slower growth.  All pointing to a slow down in inventory accumulation and probably a pull back in inventory levels.

In summary - an inventory trough is approaching.  Now, the economic cycles and equity cycles do not often occur at the same time.  If as expected the equity market moves first that could occur in the 4th qtr of 2012 or 1st qtr of 2013.  It is due within the 3-4 year (average about 3.5 years or 42 months),  but may be nearer the 4 year (48 month) time frame because of Federal Reserve intervention. 

Here is a visual  of the Kitchin and shorter nested cycles:

We will discuss other longer cycles in subsequent posts.  As you would expect if we get multiple economic cycles contributing to a move then that move becomes substantial. 

Our call for the prior week (downside bias and suggesion of buying and inverse as insurance) was on the mark.  IMO the bears continue to be in control for now, so hold your inverses...  GL traders.

11-12 Inventory topping?

Wholesale inventory showed a slight lag recently.  As sales stagnate inventory will be reduced. 

http://www.safehaven.com/article/23266/the-end-of-the-inventory-build-cycle

Why should you care?  The inventory cycle is an economic cycle.  But the Kitchin stock cycle is based on the inventory cycle.  This cycle normally precedes the inventory by 3 or so months  (for example the stock market cycle bottomed in March 2009 and the inventory cycle did not bottom until around May in 2009). 

The Kitchin averages about 42 months and is encompasses 9 Wall cycles (20 weeks/100TDs).  The Kitchin cycle has topped some months ago (so if it precedes the inventory cycle we would expect a top in the inventory cycle).  At 42 months the Kitchin should bottom around Aug/Sep of 2012.

Here is the Kitchin cycle: 

Comments and outlook for August 2011

The Kitchin business cycle is 42 months ideally (may vary from 3-5 years).  The bottom was around March 9, 2009.  So half a cycle to the peak would be 21 months to around Dec 9, 2010.  Given the revised GDP numbers for the first quarter and for the second quarter I think we are safe in saying we have seen a business slow down in the first half of 2011 (as we would expect if the Kitchin cycle peaked in late 2010).  So BIG picture is we now have the business cycle slowing down and that should last another 14 months or so if we get a 42 month Kitchin cycle. March  2009 plus 42 months is 3.5 years or September 2012.

Within the Kitchin there are 9 Wall cycles of 20 weeks.  The 6th wall Cycle of 9 should bottom in mid August.  In addition we have a 22TD cycle topping now (Aug 1-2) and bottoming around Aug 17.  The 34 TD cycle is bottoming now (Aug 1-2) and turning up.  The 65TD cycle is topping and turning down.  So in mid August we have the 22TD cycle bottoming along  the 20 week cycle.  The 65TD cycle  is down into mid August and beyond. 

So after Aug 2 (bottom?) we get a few days (my guess is 4-5 days) up from the 34TD cycle being up and after that the longer cycles along with the 22TD cycle abort any attempt to rally.   So I am looking for lower highs followed by lower lows in by mid August.  After the low in mid August we will get another attempt at rallying but you have the 65TD cycle still down.  The 20 week cycle will have turned up, but will take some time to gather upward momentum.  Finally the 34TD cycle will top the third week in August and turn down.  So I expect the rally after August 17 to be rather weak also (another lower high?).  This should play into a rather major bottom in mid September.

Here is a chart of these longer cycles:

The minor top in early August should be around Aug 8-9 .  The minor top in the second half of Aug should be around  Aug 25.  We should see a bottom the first 2 days of Aug, and another bottom around Aug 17.  There is a third minor bottom that should occur in early Sept.  The mid month bottom is the most significant bottom in August.  Here is a zoom in chart of the shorter cycles showing Aug:

GL traders.  I have tried to summarize August without being too verbose.  Do you own analysis.  Comments, feedback and your opinions always welcome.

Update 07-31 08:30 EDT:

Here is a graph of seasonal trends for August.  Compare it to our cycle outlook: