Here is why.
Long term World Report readers know how much I believe in 30 year market cycles and that we are currently in a 15 year downward cycle supported by a history of over 100 years.
These cycles are intricately connected with waves of productivity. Each productive evolution has been fueled by new technology, water power first, then steam, the internal combustion engine, jet engine, TV, telephone, computer and internet…all little productive ducks in a row…each helping mankind process more. Each technology grew in perfection due to a war.
You can see this quite clearly, in the graph below, how each upwards cycle rises after a war (postwar boom) and how the market then crashes before the next upcoming war.
The first postwar boom probably started in about 1865. We cannot see this as the chart does not start until 1890. I am guessing the 1865 date because this was the end of the War between the States. This war was a battle over cotton the primary ingredient used in the water powered industrial revolution, an era dominated by textiles.
We can see this boom carrying on up through 1900.
The first fifteen year downwards cycle began in 1900 a downfall leading to WWI in 1914. There were a couple of short term blips (which also occurred in other cycles) probably one caused by the Russo-Japanese War which ended in 1905 when President Theodore Roosevelt mediated the Treaty of Portsmouth. The blip you see in 1907 was called the panic of 1907 and was caused by a run on the banking system. This was stopped by J.P Mogan’s importation of $100 million of gold from Europe , but the correction was only temporary as the chart clearly shows. (This is important as we’ll see in a moment.)
Don’t we wish that the world’s economic problems could be solved with a mere $100 million of gold today?
Anyway at the end of WWI we see the next post war boom which runs up to 1929.
Then comes the next fifteen year down cycle from 1929 to 1945.
As in the last cycle there is a sharp downward blip in the middle caused by a run on U.S. banks which is once again mitigated by intervention, this time, FDR’s Presidential election and the New Deal.
There is a nice postwar boom 1946 through 1968 once again followed by a fifteen year downfall. (Note the sharp downwards blip in the middle caused when high inflation, a devaluing US dollar, and rising oil prices once again shook the U.S. banking system).
1968 began the next 15 year downwards cycle which was the rundown to WWIII (Reagan-Thatcher versus the Evil Empire), albeit a cold war. That war caused the end of the USSR and the nuclear threat we had lived under.
That ending in 1980 kicked off a post war boom that ran (surprise-surprise) for about 15 years until the crash of 1998.
Is this a coincidence or a pattern? If history has anything to do with the future than we can expect the following:
#1: The next big bull market in Wall Street will begin about 2012.
#2: A run on the banks. In 2002 I wrote at this site: “There will be a U.S. banking crisis somewhere around 2005 and a nice short term recovery thereafter.”
I missed that one (maybe) by two years. This is a problem with history…we can never see exactly when it will repeat. Yet here we are with a banking crisis (hundreds of billions of intervention this time) and the short term recovery in the market.
#3: WW IV.
I have been stumped. When will WW IV begin and where will it be? I have been watching and waiting and watching more. Somewhat frustrated I might add. “It is about time for the war to start,” I kept thinking. I knew that Iraq (as Vietnam wasn’t) was not the big one.
Finally we are told….by of all people…our President of the United States . George W. Bush.
Here is an excerpt from a USA Today article that appeared last week:
“ WASHINGTON — President Bush planned to talk to reporters Wednesday about domestic issues. Instead, he spent the news conference mostly on foreign affairs, including his blunt assessment that a nuclear-armed Iran could lead to ‘World War III.’
“I’ve told people that if you’re interested in avoiding World War III, it seems like you ought to be interested in preventing the Iranians from gaining the means to make nuclear weapons,” Bush said. Bush said he looked forward to hearing from Putin about his recent visit to Tehran , where the Russian leader warned the United States against any attack on Iran and questioned whether the Iranians are seeking a nuclear weapon.”
There you have it. The war that history demands we have…and just about on time. Remember these cycles are never exact. However we should expect WW IV to build and peak before 2012.
We should not be too surprised that the President missed accurately predicting which war was about to start. He has missed a few other vital points, such as weapons of mass destruction and what torture is, so why not miss a world war? Though I am surprised that some Republicans in the White House missed the chance to claim that Republicans won WW II and now are the party to win WW IV as well. Maybe that’s coming.
So let’s set the record straight. The upcoming conflict will be WW IV not WW III. A better president (who, yes was a Republican) fought with Maggie Thatcher’s help (and won) WW III in 1980.
Here is the point. In every era, a major war caused mankind to throw all concepts of return on investment while developing new technology. In war you come up with the new, winning weaponry “or else”. You can ask General Lee, Field Marshal Paul von Hindenburg, Adolph Hitler, Emperor Hirohito, most dramatically the residents of Hiroshima and Nagasaki or Michael Gorbachev what “or else” means.
Each world war sees an outpouring of research and field testing of new technologies that after the war are shifted to domestic use. The War between the States refined the steam engine, WW I-the car, WW II-the Jet, TV, Telephone, Plastic and Nitrate fertilizers. WW III-the PC and Internet. The introduction and absorption of these products into domestic use dramatically enhanced human productivity and launched an economic boom.
So what new technology will WW IV bring that will once again boost our productivity and start the next big economic boom?
I do not yet know, but at least we now have a clue when and where the war might start.
By the way I hope the President is wrong yet again. I have enjoyed not wondering each day if the entire country will be vaporized. I would be the most tickled of all if this analysis of history and economics is wrong.
Yet, we much watch. If the Iranian problem persists, it could lead to more all out technological research because with Iran , MAD (Mutual Assured Destruction) might not work so well.
I cannot yet hazard a guess as to any outcome but will be thinking about what good could come from this.
Can you? I would love to read your opinions.
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