Grand supercycle

A Grand Supercycle is the longest period, or wave, in the growth of a financial market as described by the Elliott Wave Principle, originally proposed by Ralph Nelson Elliott. Elliott speculated that a Grand Supercycle advance had started in the United States stock market in 1857 running to the year 1928.[1], but acknowledged another interpretation that it may have been the third or even the fifth Grand Supercycle wave.[1] However, these assignments have been reevaluated and clarified using larger historical financial data sets in the works of A. J. Frost and R.R. Prechter, and the start is now considered to be 1789, at which time the stock market data begin.[2]

Like all Elliott Waves, Grand Supercycle waves are subdivided into smaller generations of waves. The next generation of smaller waves are those of Supercycle degree. Modern applications of the Wave Principle also describe waves of larger degree spanning millennial periods of time, such as the Millenium Wave.[2]

Modern application of Elliott Wave Theory posits that a Grand Supercycle wave 5 is completing in the 21st century and should be followed by a corrective price pattern of decline that will represent the largest economic recession since the 1700s.[3]

In technical analysis, Grand Supercycles and Supercycles are often compared to the Kondratiev wave, which is a cycle of 50 to 60 years, but these are in detail distinct concepts.

Economic Waves series

(see Business cycles)

Cycle/Wave Name Years
Kitchin inventory 3–5
Juglar fixed investment 7–11
Kuznets infrastructural investment 15–25
Kondratiev wave 45–60


Contents

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 [4] When that was proven incorrect it was later revised to be 2000 and then 2006. [5] [6] 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.[7]

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'. [8] [9] 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.

Comparison to the Kondratiev cycle

Elliott Wave analysis is distinct from Kondratiev wave analysis. Modern Kondratiev theory examines the role of leading technologies in creating long economic cycles. Although Elliot wave practitioners and other market analysts refer to Kondratiev waves or long economic cycles or surges, the economic literature generally does not use the term Grand Supercycle for any business cycles.

Although wave analysts have been predicting a long cycle downturn for a number of years based on the timing of previous waves, there is limited support in the Kondratiev cycle literature for any regular or periodic recurrence of future cycles, but spectral analysis of business cycle may suggest a 53-year cycle. A branch of Kondratiev wave analysis that has predictive power is that using the logistic function which has been investigated by members of IIASA in papers by Cesare Marchetti and Arnult Grübler's book on infrastructures, which has a chapter on Kondratiev wave cycles and notes a 55-year time between mid-points of infrastructures.

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 around 1000 A.D. with the end of the Dark Ages. This wave configuration is accepted by some Elliott wave analysts[7] but rejected by others.[3]

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 period. Robert Prechter has repeatedly stated that the collapse will take the form of a deflationary depression probably followed by hyperinflation. This 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.” [8]

Controversy about the Elliott Wave Grand Supercycle

Many controversies surround the concept 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 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 insufficient to explain how it would propagate or what causes it, or even the smaller-degree waves that the theory suggests.[citation needed]
  • 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.[citation needed]
  • 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.[citation needed] 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."

See also

Notes

  1. ^ a b R.N. Elliott, The Wave Principle (1938) in The Major Works of R.N. Elliott by R.R. Prechter, New Classics Library, Inc. (1980), p.56
  2. ^ a b Alfred John Frost, Robert Rougelot Prechter, Elliott Wave Principle: Key to Market Behavior. John Wiley and Sons. John Wiley and Sons. ISBN 0-471-98849-9.  Chapter 5, Figure 5-4
  3. ^ a b Robert R. Prechter, Jr., At the Crest of the Tidal Wave. John Wiley and Sons. 1997. ISBN 0-471-97954-6.  Chapters 2 & 5
  4. ^ Norris, Floyd (February 6, 1989). "Market Place; 2 Theorists Split On Elliott Wave". The New York Times. http://query.nytimes.com/gst/fullpage.html?res=950DE0D61E39F935A35751C0A96F948260. Retrieved May 4, 2010. 
  5. ^ Robert R. Prechter, Jr., Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression. John Wiley and Sons. 2002. ISBN 0-470-87090-7. 
  6. ^ Robert R. Prechter, Jr., View from the Top of the Grand Supercycle. New Classics Library. 2003. ISBN 0-932750-55-9.  Preview
  7. ^ a b Joseph M. Miller, Daan Joubert, Marion Butler, 12,000 years of Elliott waves and what this means for the 21st century
  8. ^ a b Robert R. Prechter, Jr. FinancialSense interview and transcript
  9. ^ Robert R. Prechter, Jr. Tim W. Wood interview

References


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