Tuesday, December 6, 2011


Delving a bit into cycles via Google I came upon Cycle Dawg's Swing Trade cycles blog. It appears to be a blog for traders, which I am not, and at a glance seems to cover TD cycles. Whatever they are.

The 34TD cycle is up. The 4.6TD cycle is up. The 22TD cycle, 11.2TD cycle and 2.8TD cycle are down....

"Trading Day" maybe: TD stands for Trading Day. I bet that's it.

I did like Cycle Dawg's blog-description text:

Cycles are a tool and should not be used to the exclusion of other tools. There is always the possibility (high probability long term) that the data will be misinterpreted or a relevant fact over looked. So use cycles to check your analysis, not as the only reason to make a decision.

Anyway, for Cycle Dawg, cycles are a tool. For purposes of trading, I can see that. For my purposes, which are apparently the observation and understanding of economic history, cycles are generalizations that (may or may not) emerge from the evidence.

A long time back I read The Kondratieff Wave, by James B. Shuman and David Rosenau (World Publishing, New York: 1972). In the preface the authors wrote of "a long wave that controls not only the economy but the way people act". In my notes on the book I wrote: "my problem with this is, the wave does not 'control the economy.' The wave is simply an observed phenomenon. The wave is a hint."

And again: On page 102 the authors wrote

The reasons for this shift [in federal budget deficits or surplusses counted by decade] are not difficult to understand if we understand the long wave and its influence on the economy.

And in my notes:

no, they have the wrong approach. The long wave is not a force unto itself which exists apart from the economy, and "influences" it. The long wave is simply observed to occur. The long wave is a hint.

I don't know why anyone would want to say that something caused the cycle or that the cycle caused something. It is much simpler than that: The things that occur accumulate into a pattern that may (or may not) be described as a cycle. If you want to know what the future holds, you can expect it to follow the same pattern as the past unless you recognize the historical pattern and its causes, and change the future.

At the Kondratyev Theory Letter, Eric Von Baranov writes:

I am torn here in explaining the cycle. One quickly gets to a chicken or egg situation where either new innovation defines the start of the wave or the limits to growth create the struggle for new innovation.

Von Baranov's hesitation is altogether appropriate. I don't understand why people think they always have to put causes on things. I say if you collect enough observations, you will find your conclusions among them. Cycles, like conclusions, arise from the evidence.

From eScholarship at the University of California, a paper of the title

A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis

The paper provides some background:

A considerable number of explanations for the observed Kondratieff wave ... patterns have been proposed. As at the initial stage of K-wave research the respective pattern was detected in the most secure way with respect to price indices, most explanations proposed during this period were monetary, or monetary-related... Note that in recent decades such explanations went out of fashion, as the K-wave pattern ceased to be traced in the price indices after the 2nd World War....

Kondratieff himself accounted for the K-wave dynamics first of all on the basis of capital investment dynamics...

However, in the recent decades the most popular explanation of K-wave dynamics was the one connecting them with the waves of technological innovations.

This direction of reasoning was used by Schumpeter....

As for myself, I tend toward the monetary explanation.

A link I don't want to misplace, to Joshua S. Goldstein's The Predictive Power of Long Wave Theory, 1989-2004

Also, PDFs providing the full text of Goldstein's book Long Cycles: Prosperity and War in the Modern Age.

I spent only a few minutes at Goldstein's site. But this guy is good.

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