The Kondratieff wave cycle is a controversial study of economic activity in capitalist societies detailing the rise and fall of stock markets, commodity prices and interest rates. Kondratieff’s original study focused primarily on England although it has been more popularly applied to the United States. One intriguing aspect of the Kondratieff wave was the association of wars particularly to the peaks (summer) and the troughs (winter) of the cycle. Our table below summarizes these wars.
Peak Wars Trough Wars
War of 1812 – Kondratieff summer 1803-1816
American Civil War – Kondratieff summer 1859-1864
World War 1 – Kondratieff summer 1908-1920
Vietnam War – Kondratieff summer 1966-1981
Trough Wars
Mexican American War – Kondratieff winter 1835-1844
Indian Wars/Spanish American War – Kondratieff winter 1875-1896
World War 2 – Kondratieff winter 1930-1949
War on terrorism or? – Kondratieff winter 2000-?
The last Kondratieff winter (1930-1949) saw the Great Depression, the rise of Nazism and the holocaust, and World War 2 culminating in the use of nuclear bombs (WMD) on Hiroshima and Nagasaki. Terrorism was a theme in the rise of Nazism. The Nazi’s seized power convincing the German people that they were under attack from Communists, dissidents, and many others. The Nazi’s then instituted their own brand of terror.
The Kondratieff winter of 1875-1896 was a period of American expansionism into the American west, adepression following the American Civil War and the building of the railways. The Indian wars (1866-1890) dominated the period. Terrorism played an important role, as the fear of Indian attacks led to a massive military build-up that culminated in the massacre of Wounded Knee ending the indig enous peoples domination of the American West. The Spanish American War (1898) signaled the start of a new Kondratieff spring (1896-1907) and another period of American expansionism.
The Kondratieff winter of 1835-1844 was also a period of American expansionism and an economic depression. The Mexican-American war was the first American conflict driven by the idea of "Manifest Destiny". The actual Mexican American war was 1846-1848 but before that there were numerous conflicts leading up to the war including the Texas War of Independence (1835-1836) and numerous Texas/Mexico border wars (1837-1842). The US believed they had a right to occupy the whole continent and as more Americans moved west there was a need to protect them from falling under the rule of Mexico.
Wars and depressions have been significant characteristics of the Kondratieff winter. But themes of US expansionism and terrorism are also woven in. Today the war on terrorism and the threatened war with Iraq amidst accusations of American global expansionism are once again themes that cannot be ignored. And this is coming as deficits both internal (budget deficits are projected to reach upwards of $300 billion in 2003) and external (record trade deficit of $40.1 billion projects to trade gap of $473 billion for 2003). In another era of global domination by one superpower one of the reasons the Roman Empire collapsed was because of the sheer cost of maintaining the empire causing both internal and external unsustainable deficits.
Today the war on terrorism is focused largely on Al Qaeda and Iraq. But the focus on Al Qaeda appears to now have taken a back seat to Iraq. This is even though there have no apparent links drawn between Al Qaeda and Iraq. But war jitters remain front and center and it is this uncertainty that casts a pall over investor sentiment. Consumer sentiment has fallen to its lowest level in years. As if the shadowy threat of terrorism is enough bankruptcies continue at a record pace and each week brings a fresh round of layoffs and closures somewhere. The business sector is also reeling and is putting off new investments.
One area of the war on terrorism that is not getting the attention it is due is Homeland Security and the apparatus that surrounds it. Starting with the Patriot Act (and Bill C-26 here in Canada) there has been a growing clamp being placed on freedoms. These acts and Homeland Security allow for increased surveillance including written, oral and electronic communications, employment, banking, borders, airports and many more.
Programs such as "Operation Tips" gives rise to citizens spying on citizens. The chance for serious mistakes to be made and innocent people to be snared in these types of programs is exceptionally high. Already criticism of the either President Bush or key White House administration has cost numerous people jobs rightly or otherwise. Allowing protests only in designated confined areas usually far away from either the President or key White House officials has compromised peaceable assembly. Gr owing anti-war protests, while allowed, and, they have been generally peaceful, are nonetheless monitored by a huge police presence including filming of participants.
While many see these programs as necessary and justified to fight terrorism and they believe that giving up some freedoms in order to ensure their security is the right thing to do, civil liberty organizations see them as a frightening byproduct that threatens the Constitution of the United States and its Bill of Rights and here in Canada the Charter of Rights and Freedoms. We are reminded of a couple of famous quotations first from Benjamin Franklin "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty or safety" and from Aristotle "The basis of a democratic state is liberty".
And Homeland Security does not come cheap. It is estimated that expenditures in 2002 were $30.3 billion to rise to $37.8 billion in 2003. One area that stands to benefit is information technology spending (IT). The Treasury Department has requested upwards of $638 million in IT spending related to Homeland Security. Given the ongoing slump in technology spending it could provide a significant boost to IT companies particularly ones specializing in emerging technologies of security, biometrics, fingerprinting and others. Expansion of these areas of course is also under attack from the same civil liberty organizations that do not wish to see an Orwellian state set up.
War in far away lands and massive tightening of security at home. All of these are part of what could be a never-ending war. Conventional warfare has a winner and a loser. But in a war on terrorism it is a war against an unknown, unseen enemy with no seeming end. This casts an atmosphere of fear and paranoia such that it threatens to cast a dark shadow over our economic and social well being for years to come. It is not an atmosphere that is conducive to investment despite the efforts of monetary and fiscal authorities to provide liquidity and economic certainty to economies in the face of massive uncertainty.
But then that is what the Kondratieff winter is about. And that atmosphere we continue to emphasize that the one investment that can and will thrive is gold and other precious metals. The Kondratieff winter is about the collapse of paper assets. In economies that are overburdened with massive amounts of debt such as we are for the consumer, corporations and governments the only way out is either debt collapse or massive reflation to inflate the debt away. Both will end badly as paper currencies become more and more worthless. During the Great Depression while the Dow Jones Industrials fell 89% from its peak, gold stocks as represented by Homestake Mining rose over 700% during the same period.
While gold and silver stocks should make up a portion of an investor’s portfolio it is also wise to hold the metal itself as portion of their cash position. Investor’s can invest in gold and silver in two manners. Central Fund of Canada (CEF.A-TSX, CEF-AMEX) (
www.centralfund.com, 905-648-7878) is a closed end fund that invests at least 90% of its assets in gold and silver. Central Fund can trade at a premium or discount to its net asset value depending on demand. The Millennium BullionFund (www.bullionfund.com, 416-777-6691) is a mutual fund trust that invests solely in equal amounts of gold, silver and platinum. (Note: I am a director of Bullion Management Services the holding company for the Millennium BullionFund). Both are RRSP eligible in Canada.
- Visit Union Securities The opinions, estimates and projections stated are those of David Chapman as of the date hereof and are subject to change without notice. David Chapman, as a registered representative of Union Securities Ltd. makes every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. Neither David Chapman nor Union Securities Ltd. take responsibility for errors or omissions which may be contained therein, nor accept responsibility for losses arising from any use or reliance on this report or its contents. Neither the information nor any opinion expressed constitutes a solicitation for the sale or purchase of securities. Union Securities Ltd. may act as a financial advisor and/or underwriter for certain of the corporations mentioned and may receive remuneration from them. David Chapman and Union Securities Ltd. and its respective officers or directors may acquire from time to time the securities mentioned herein as principal or agent. Union Securities Ltd. is an independent investment dealer and is a member of the Toronto Stock Exchange, the Canadian Venture Exchange, the Investment Dealers Association and the Canadian Investor Protection Fund.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC,
is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.
