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Let’s turn our attention to a cycle which we’ve rarely
discussed over the years. The Kress 24-year cycle is one of the components of
the 120-year cycle series which is scheduled to bottom in 2014. The 24-year
cycle tends to get eclipsed by the longer-term cycles like the 40-year and
60-year cycles (both of which have a major impact on equity prices and the
economy). But the 24-year cycle takes on a special significance all on its
own: it’s the cycle of war.
The final “hard down” phase of any cycle is defined as the
final 8% to 12% of the cycle (averaging 10%). Therefore the final “hard
down” phase of the previous 24-year cycle encompassed most of the year
1990. Not surprisingly, the year was a bearish one for stocks. The banking sector
was particularly hard hit by this particular 24-year cycle as 1990 was the
worst part of the infamous S&L crisis and saw the failure of more than
100 small banks.
The 24-year cycle might be described as the first of the major
longer-term cycles and tends to bottom with a strong impact. Not only does
this cycle typically bring about a major decline in equity prices, its bottom
also historically coincides with the initiation of military hostilities.
Since 1894 when the previous 120-year Grand Super Cycle bottomed and a
new one began, there have been four military conflagrations at each
subsequent bottom of the 24-year cycle. Most of these wars have been major in
scope. The first such instance of war occurred in the years leading up to
1918, which saw the first 24-year cycle bottom of the current 120-year cycle.
The 24-year cycle that bottomed that year saw the ending to the First World
War. Remembering that the final “hard down” phase of the 24-year
cycle approximates to almost two-and-a-half years, this represented roughly
the second half of that major war, a war that involved the United States.
The next 24-year cycle bottom occurred in 1942. This year represented
the United States’ entry into the Second World War against Japan and
the Axis Powers. Both the 1918 and the 1942 cycle bottom years proved vicious
in terms of military conflicts on the global scale.
Following the 1942 bottom, the next 24-year cycle bottom occurred in
1966. This was a particularly harsh year in the Vietnam War in terms of the
United States’ involvement. Following the 1965 National Liberation
Front attack on two American military installations, President Lyndon Johnson
ordered the continuous bombing of North Vietnam.
The year 1990 saw the most recent 24-year cycle bottom in the current
120-year Grand Super Cycle. This year saw the start of the first Persian Gulf
War involving the United States and its allies against Iraq. This period also
saw a rather conspicuous jump in the price of crude oil as it related to the
war and its anticipated supply disruptions.
The final “hard down” phase of the current 24-year cycle
begins this year. It shouldn’t be surprising in light of this fact that
we’re already hearing a steady increase in war drums pounding for a
preemptive strike against Iran. As I wrote in my book, The Stock Market
Cycles, “If history repeats the period between 2012-2014 can be
expected to usher in another major war involving the U.S., possibly on the
global scale.” I’ve since amended my expectation for war to occur
no sooner than the actual 24-year cycle bottom in later 2014.
One example of the psychological preparation for war in the mainstream
media is in the February 13 issue of Newsweek magazine. The front
cover of this edition of Newsweek features a wall art portrait of Christ
bespattered with what appears to be blood and accompanied with the headline:
“The War on Christians.”
The article by Ayaan Hirsi
Ali begins with these ominous words: “From one end of the Muslim world
to the other, Christians are being murdered for their faith.” The
article goes on to chronicle the increase in terrorist attacks on Christians
in Africa, the Middle East and Asia (up 309% from 2003 to 2010, according to Newsweek).
It further states, “In Iran dozens of Christians have been arrested and
jailed for daring to worship outside the officially sanctioned church
system.”
One can’t help but wonder by a mainstream publication which has
in the past been less than sympathetic to Christianity in America is suddenly
concerned with the plight of Christians in the Third World. The answer can be
found elsewhere within the same issue. In his latest column, Newsweek
columnist Niall Ferguson argues in favor of a preemptive Israeli attack on
Iran and why the U.S. should theoretically support it. He gives five reasons
in support of this aggressive military stance. He concludes with these words:
“War is an evil. But sometimes a preventive war can be a lesser evil
than a policy of appeasement….It feels like the eve of some creative
destruction.”
Mr. Ferguson isn’t alone in his feeling. The belligerence on
both sides is “getting frightening” said The New York Times
in an editorial. Rumors of an Israeli attack this spring are spreading.
Leslie Gelb, writing in TheDailyBeast.com, opined that an attack
against Tehran would unleash a major reprisal against targets both foreign
and domestic. Oil and gas prices would soar and the economic recovery would
be imperiled, says Gelb, adding that if diplomacy fails “we’re
stuck on today’s collision course with Iran.”
For all the saber rattling, a war against Iran is unlikely this year.
War sentiment is high mainly because the economy has recovered enough in the
last couple of years to allow officials to finally turn their attention from
economic concerns at home to military matters. The current U.S. presidential
election should detract attention from the Iran problem in the coming months,
however. And if the Kress cycles are correct, the current recovery phase is a
temporary phenomenon, and by the end of this year deflationary pressures will
return once the 4-year cycle has peaked.
Gold is an excellent barometer of, among other things, military
aggression. The gold price will typically spike significantly higher for at
least two months prior to the outbreak of war. As you can see here, gold has
been in a comatose state for the last several months and has made a series of
lower highs since peaking last summer. Gold doesn’t smell war as yet.
If a major war is coming this year then we should see gold overcoming its
nearest high from November followed by a strong and sustained rally in which
gold goes on to make a series of higher highs and higher lows.
Another concern being voiced in the media is the potential for a
war-induced spike in the oil and gas price the real problem. As it turns out,
oil doesn’t need a war to move higher. The media haven’t given it
much coverage lately but energy prices have been steadily approaching their
highest levels in three years and could even approach pre-credit crisis
levels by summer. (See the weekly gasoline futures chart below.) If the
gasoline futures price pushes decisively higher above the 3.06 level (last
year’s high), expect to see an explosion of fuel-related fulminations
in the mainstream media. This in turn would add to equity market volatility
going forward and would give investors something new to worry about besides
Greece and Iran.
Another point worth considering is that the U.S. has never entered a
major theater of war during a presidential election year. This is an
important point to remember whenever we hear the rumormongers in the media
warning of an “imminent” war with Iran. Consider the following statistics:
- Wilson re-elected in
1916 on campaign slogan of “He kept us out of war.” U.S.
enters WWI on April 6, 1917, the year after Wilson’s
election.
- Roosevelt re-elected
1940. U.S. enters WWII Dec. 11, 1941, the year after Roosevelt’s
election.
- Truman elected 1948.
Korean War starts in 1950.
- Kennedy elected
1960. U.S. entry in Vietnam begins in 1961.
- Bush Sr. elected in
1988. Operation Desert Storm Jan. 17, 1991 – Feb. 28, 1991, almost
two years before the 1992 election.
- Bush Jr. elected in
2000. The War in Afghanistan starts on Oct. 7, 2001. Second Iraq War
invasion started in 2003. Bush re-elected in 2004.
Based on this historical pattern, it’s unlikely that 2012 will
witness the opening of a new theater of war for the U.S., particularly since
the U.S. has just exited Iraq. Also worth mentioning is that major wars are
rarely commenced during deflationary winter. Major wars involving the U.S.
tend to begin after a major long-term cycle bottom (e.g. the 12-year cycle
bottom year of late 2012 saw the start of the second war with Iraq).
The 12-year cycle is exactly one half of the 24-year cycle of war,
both of which are scheduled to bottom in 2014 with the 120-year cycle.
Accordingly, any major war involving the U.S., which could potentially
involve Iran or another Middle East country, is likely to begin at some point
after the 2014 long-term cycle bottom.
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