Into the downwave -revisited

Travelling across the North of England the problems of the world's finance markets seem both a million miles away and yet at times close to hand. Two of the regions largest banks have effectively been nationalised and jobs are at risk or indeed have been lost.

Currently we are staying in a bed and breakfast in Carlisle which is just north of the English Lake District.It's a largely agricultural community so there is more permanence and less change being talked about.  However what i really wanted to talk about is history repeating itself. In our luggage is a copy of a 20 year old book by Robert Beckman called "Into the upwave". This was published in 1988 just after the crash of 87. Remember back then when computers were largely for geeks and no one had heard of microsoft? Anyway i will summarise some of the issues he raises below and then address the key areas in more detail in later blogs.

Beckman starts off by introducing Kondratyev who started off his career as a Russian agricultural economist in the days before the Russian revolution. He was the first person to identify the major long term business cycles. The success of his work came too late to offer any compensation as he then died in a Siberian labour camp.

The cycles he talked about were longer than any previously studied.Basically he saw four cycles as follows

Each peak corresponded with a war

 

1814 ( Naopleonic wars)

1864 ( Civil war in America)

1920 ( WW1)

1973 ( Vietnam)

 

( notice that WWII helped start the rise out of the depression of the 1930's...but it was nowhere near a peak)

 

and the troughs were

1843

1894

and

1934

So you can see where he was coming from. He expected the cycle to bottom in the early 90's and to then grow strongly, hence his title of "into the upwave".

if the previous cycle frequencies were followed then the next peak would be around 2030 to 2040. So does this mean that the current malaise is just a blip on rising markets or maybe the introduction of computerised trading combined with the complicated financial derivatives has shortened the cycle lengths.

Also, and perhaps more worryingly after each peak there was a sharp fall followed by a minor secondary recovery and then just a long long drop in the markets.

So having established the background what else does Beckman talk about?

Maybe a few quotes will help here.

Very early on he established his pedigree by talking about his time on the trading floor.He then recounts meeting Charlie Meyer an old timer. Two days before the crash of 29 Charlie had said

"Too many dummies are getting rich.I'm getting the hell out"

He then goes on to quote from Warren and Pearson's "The price series"

"Economic changes,drastic in character, occurred with such rapidity that it was difficult for the human mind to forsee them or even to grasp the significance of the changes after they occur".

Anyway more to come in later blogs but for the moment we are looking on the map towards the coast of Northumberland and wondering about renting a self catering cottage in Seahouses.