Economic cycles II

The three most important cycles are:

1. ... 
2. the 7-10 year Jugular business investment cycle and
3. ...

We previously discussed #1 - The inventory cycle (known as the Kitchin cycle) which is about 3 1/2 to 4 years.  Inventory run ups are followed by inventory draw downs which affects the level of commerce.  The market sell down may well be due to businesses being over inventoried and now an inventory reduction has started?

The investment cycle (Jugular) seems to be at an end as companies have invested to improve margins the past 3 1/2 or so years, but now are postponing investment as margin improvements are hard to achieve and has probably topped.  

In 2008-2009 companies trimmed staff substantially.    Today we are back near the highs achieved in GDP, but we still have high levels of unemployment.  What happened to all those jobs from back in 2008-2009?  Companies used that as an excuse to upgrade manufacturing and processes using more machines and equipment. 

Over time you can expect this trend to continue.  At the current time companies are meeting consumer demand with reduced staffs and improved productivity.  Even though machines/equipment can work 7/24 they require no vacation or holidays off, require no health insurance.  When demand is being met there is no reason to continue to invest in more productivity improvement machines and systems.    I believe we reached that point in the first half of 2012.

If you have the technical training and can program robotic controllers like Allen Bradley PLCs there are jobs for you.  If you have no specialized skills or training there are no jobs for you.  So we have a large unemployed segment of the population.  This supresses demand and the investment cycle stagnates.

Combined with a Kitchin cycle that is also looking for a bottom and you have a high risk equities market.  Here is a visual of the kitchin/Jugular cycles...

At this time it appears the 22TD, 34TD, Wall cycle (100TD) are synched to the down side (in addition to longe cycle impact).  So the bear appears to still be in control.  I expect that to continue through Oct and possibly the first week of Nov.  GL traders .. continue to hold your inverses (shorts).

downside target just under 1370 by end of month....

35TD downside satisfied, 100TD cycle amplitude should give us a pullback to around 1367: