Get me through December
A promise I’ll remember
Just get me through December
So I can start again
~ from the song “Get Me Through December”
Markets and economics, like life, move in cycles. The only sure thing about a very long up or down-swing is that it will inevitably reverse. December is a time when neither markets, economics or our lives may necessarily be at the peak or bottom of their cycles, but the end of the calendar year still makes us reflect on where we stand on all three.
The holiday season only adds to that effect. We (hopefully) have some time to see friends and family we may not see throughout the rest of the year, and take some time to stop and reflect on the year that was and the year yet to come. December finds many of us a little weary from the events of the preceding 11 months (and perhaps from Christmas preparations and socializing).
Some of us look forward to this time of year, not only as a chance to catch up with family and friends, but to catch our breath and get a fresh start in the New Year. If you’ve had a rough year, you can take a look at whether you had any control over that outcome, and plan to hit the restart button. If you’ve had a great year, you can look at ways to do more of what’s working and store away some reserves for the coming year.
I’m not sure if you’ve ever heard of Nikolai Kondratieff, but he is known for coming up with a very long term theory on economic cycles. December is a great time to look at the BIG picture. We’re talking generations, not years here. An updated model of the theory, proposed by Ian Gordan of Long Wave Group, proposes a cycle of four seasons. Here’s a quick summary of the characteristics of each season:
- Follows a “winter” season that includes a depression
- Gradual increase in business activity, interest rates, employment, and consumer confidence from very low levels
- Stock prices begin a slow rise and reach a peak at the end of spring
- Massive increase in money supply leads to a burst of inflation that peaks near the end of summer
- Gold and interest rates rise rapidly and peak at the end of summer
- Stock market under pressure and ends summer with a bear market low
- Massive stock bull market financed by fiscal and monetary stimulus
- Euphoric peak in stock prices signals beginning of winter
- Inflation and commodities prices fall
- Real estate peak at the beginning of winter
- Gold in bear market, but lows hit as winter begins
- Debt reaches astronomical levels by end of autumn
- Soaring consumer confidence due to elevated real estate and stock prices, and plentiful jobs
- Stocks begin major bear market
- Debt becomes a dirty word
- Banking crisis
- Credit crunch – interest rates rise
- International currency crises
- Gold rises as deflation takes hold
This information and much more can be found in this chart:
(Click on the chart for a really big version)
The whole 4-season cycle lasts 50 – 70 years and we are currently in the 4th full cycle since the early 19th century. As you can see, we are currently experiencing winter. At first glance, that might seem a little depressing. But guess what? Once we’re through winter, we get to start again.
Your Life Cycle vs. the Kondratieff Cycle
This longer cycle dynamic brings home the point that where you are in your life cycle compared to the larger economic cycle matters. If you put most of your money to work in the summer and autumn and you just happened to enter retirement as the first winter blast hit, you probably wouldn’t fare very well. This is not hypothetical. A good number of people are actually in that leaky boat right now.
On the other hand, if you’re in your 20s now, you may be entering a really great period of time to be a long term investor. You will likely be entering your prime investing years during spring. The key will be to recognize when the leaves start to change and make the appropriate adjustments. 😉
Using December Wisely
This reflective holiday season is the perfect time to take a look at some of these big picture issues. Take some quality time to assess and reassess your goals, and set a course for the New Year. It’s healthy for your portfolio, for your wallet and for your peace of mind.
With all of that said, I’d like to wish each of you a very Merry Christmas and all the best for the New Year. I’m taking some time off to stop and reflect, but I’ll be back in January with some fresh perspective for you. In the meantime, I wish you peace during this holiday season and I hope the coming year brings you prosperity – whatever that means to you.
Do you find yourself feeling a little more reflective as the year draws to a close?