Grand supercycle

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In Elliott wave theory the term Grand Supercycle is used to describe the longest Elliott wave that was proposed by Ralph Nelson Elliott. Elliott speculated that a Grand Supercycle advance had started around the time that the United States declared independence from mother-England on July 4, 1776.

Like all Elliott waves The Grand Supercycle since 1776 can be subdivided into smaller waves. In this case the smaller waves are called Supercycles. The Grand Supercycle can be subdivided as follows. Wave 1 (motive) 1770's-1830's. Wave 2 (corrective) 1830's-1850's. Wave 3 (motive) 1850's-1920's. Wave 4 (corrective) 1920's-1930's. Wave 5 (motive) 1930's to early 21st century. ^{[1] [2]} Elliott wave theory predicts Wave 5 should be followed by a corrective ABC pattern, that is the largest economic recession since the 1770's.

In technical analysis, a Kondratiev wave is a cycle of 50 to 60 years, which is comparable to an Elliott wave Supercycle.

Contents 1 Possible Elliott wave position of world stock markets 2 Kondratiev Cycle position of the global economy in the 2000s 3 Magnitude and form of expected economic recession 4 Controversy about the Elliott wave Grand Supercycle 5 See also 6 Notes 7 References

[edit] Possible Elliott wave position of world stock markets

Some Elliott Wave analysts believe that a Grand Super Cycle bear market in US and European stocks started in 1987 ^[3] When that was proven incorrect it was later revised to be 2000 and then 2006. ^{[4] [5]} Others view the 2000-2002 bear market in US stocks and 2000-2003 bear market in European stocks as being of lesser degree, such as Primary, Cycle or Supercycle.^{[citation needed]}

If a Grand Supercycle bear market started in US and European stocks in 2000 then the bear market in stocks and general economic decline should be more severe than the Supercycle bear market of 1929-1932, and could possibly be much more severe. ^[6]

In Asia the Japanese stock market the Nikkei 225 is still far below its late 1980s high of 38,957.44, reaching a 26 year low of 6994.90 in 2008 which is a bear market of Grand Supercycle scale. Other Asian indices such as the Chinese stock market the SSE Composite Index have dropped over 50% after reaching all-time highs in 2007, which is indicative of a bear market of at least Cycle scale being in progress.

During 2006-2007 the Dow Jones Industrial Average made a new all-time high, this has been interpreted by some Elliott Wave analysts as indicating that 2000-2002 was not the beginning of a Grand Supercycle bear market. However as this new high was merely a nominal new high in US dollars, and not a new high when measured in ounces of gold other Elliott Wave analysts believe this new high to be 'phony'. ^{[7] [8]} This later view is supported by the Global financial crisis of 2008, a major financial crisis being the worst of its kind since the Great Depression.

[edit] Kondratiev Cycle position of the global economy in the 2000s

Conventional Kondratiev analysis would suggest that the 2000s should represent a Kondratiev winter. The fact that it is thus far (2006) not occurring suggests either monetary inflation and pumping of global liquidity on a massive scale in an attempt to deny the business cycle, or that a cycle of a larger magnitude than the Kondratiev cycle is operative and that the Kondratiev winter has effectively been overwhelmed by this larger-degree up-thrust.

There is no credit-led expansion in recorded history that has failed to end in a dramatic credit crunch and economic catastrophe. See Financial Reckoning Day by Bill Bonner and Addison Wiggin, and The Great Reckoning by James Dale Davidson and William Rees-Mogg.

Kondratiev's own work showed a Winter beginning 1914-20. That would normally have ended around 1945, but most theorists would agree that it lasted until 1949, with a new Spring commencing in that year. Given the shortest time period for the K-Wave of 40 years that would mean a new Spring Phase beginning in 1989, and an Autumn Phase beginning in 1999, with the Winter beginning in 2009. With the longest time period for the wave of 60 years, then the new Spring Phase should begin in 2009, but that would mean the Winter Phase should have begun in 1994, and now be almost over. Given any time period between the shortest 40 year and longest 60 year span of the cycle it is impossible to arrive at a Winter Phase beginning in 2000 or thereabouts.

In fact, a Spring Phase beginning in 1949 and lasting around 25 years until the mid-70s does appear to conform with the post-War boom period, and the collapse of that boom into the slump of the 1970s, and protracted recessions of the 1980s and early 90s. Trying to connect this to periods of stock market performance is a corruption of Kondratiev's work which was to do with cycles in the real economy, not in the fictional economy of stock markets.

[edit] Magnitude and form of expected economic recession

A bear market of Grand Supercycle scale should be of sufficient magnitude to be accompanied by a severe economic recession. The last Grand Supercycle was terminated by the bursting of the South Sea Bubble and Mississippi Bubble in 1720. This was followed by a period of economic stagnation which lasted over 50 years, which is longer than the length of the Great Depression. If the Grand Supercycle theory is correct then the magnitude of the current recession should be of greater magnitude than the Great Depression, and possibly of greater magnitude than the severe economic recession from the 1720s–1770s that terminated the previous Grand Supercycle of the Renaissance.

It should be understood that this is meant in relative rather than absolute terms, so that rather than the standard of living dropping to the lows of the Great Depression what may occur is simply many decades of economic stagnation.

However if the termination of the current Grand Supercycle coincides with the termination of an Elliott Wave of greater degree, then the economic recession should be of a significantly greater magnitude than the previous Grand Supercycle collapse. This would be the case if the current Grand Supercycle is the 5th wave of the so called X-Wave or Millennium wave beginning in around 1000 A.D. with the end of the Dark ages. This wave configuration is accepted by some Elliott wave analysts^[6] but rejected by others^[2].

A controversial issue is whether the severe economic recession accompanying the termination of the current Grand Supercycle will take the form of either a deflationary depression or a hyperinflationary holocaust. Robert Prechter has repeatedly stated that the collapse will take the form of a deflationary depression probably followed by hyperinflation. As is made clear in the following quotes from October 2006:

JIM: If you were to make your case for deflation right now, what would be the key factors supporting that view?
BOB: The credit bubble: the fact that we do not have currency inflation as much as we have credit inflation. And credit bubbles have always imploded. The amount of dollars out there that are greenbacks – actual cash – is miniscule [sic] compared to the dollar value of credit instruments. So in my view the Fed is utterly powerless to prevent the ultimate deflation of the credit bubble. And some people say, “Well, they can print money.” Fine, that would just make the credit bubble collapse faster as soon as bond holders realize that’s what they were doing. There’s no way out of it. So that’s the argument.
...

BOB: Well, the hyperinflation part is a pure guess based on politics. It has nothing to do with reading markets. I think the markets are telegraphing deflation, and I’m very confident about that. Hyperinflation to me is going to be the natural political response. I mean these people in Congress are so irresponsible – except to themselves and their families, of course. They always get reelected so they’re doing that correctly. I mean, it’s working for them as individuals but it’s not working for the country. Anyway, to save their own skins I think the most likely thing is that they will turn to the Treasury, whether they keep the Federal Reserve System or not, and say, “Let’s print, let’s get the machines going and print those greenbacks and spread them around.” ^[7]

[edit] Controversy about the Elliott wave Grand Supercycle

Many controversies surround the idea of the Grand Supercycle:

• Stock transactions did not occur during the first years of the United States and price data is thus not available. The notion of the Grand Supercycle was thus implied by R. N. Elliott by concatenating gold prices, British stock market prices, and later U.S. stock market prices, as the U.S. economy surpassed the U.K. It is not truly clear that this methodology is scientifically robust.
• The hypothesised Grand Supercycle is conjectured to span more time than a human life, which some say means it cannot exist. Followers of Saeculum Theory take this view and align instead around a belief that defined sequences of generations relearn approximately the same lessons as their forebears. Similar ideas can be found in the Bible. The Saeculum might map to the Kondratiev cycle.
• If a social cycle of such large degree does indeed exist, then present-day scientific and economic understanding is at a loss to explain how it would propagate or what causes it, or even the smaller-degree waves that the theory suggests.
• If financial and social trends exhibit a constrained, patterned architecture then there would be wide-reaching ramifications in terms of the modern-day Western belief in free will, thought inspired by the Age of Enlightenment and its belief in the supremacy of reason, predestination and the nature of the relationship between the individual and society.
• The idea of a Grand Supercycle bear market implies that mankind will never learn from its past mistakes, or become self-aware in a macro-economic sense. The historical study presented in David Hackett Fischer's The Great Wave (Oxford University Press, 1999), however, presents a meticulously-argued case that the periodic crises in human history are becoming steadily less volatile, which suggests that some kind of species-wide learning is occurring. This could be consistent with Rupert Sheldrake's controversial theory of "morphic resonance."

[edit] See also

• Elliott wave theory
• Market trends
• Kondratiev wave
• Economic cycles
• Business cycle
• David Hackett Fischer

[edit] Notes

[edit] References

• The Great Wave: Price Revolutions and the Rhythm of History (2000) ISBN 0-19-505377-X