Kondratieff Waves - Do They Exist?

When looking at Google-trends there is some search volume on the term “Kondratieff," but all entries have a European origin. I have checked EzineArticles.com too and the search for “Kondratieff" delivers no results.

If the Kondratieff wave exists, there is very little interest for them from the US.

I was triggered about these waves from an article (column) I read from an investment guru. He wrote that economies move in trends. “These are not short term trends we see in the investment markets, but long trends of decades, that move economic systems. From ‘64 to ‘82 the economies were struggling with inflation. The stock exchange didn't increase (much) over these years. Since ‘82 the inflation rate has moved around lower values, giving positive support for companies profits and thus for rising stock prices. Since 2005 the inflation is going up again." The end of the story was that all this (inflation threat) would move stocks again, but in the opposite side of the previous cycle. The description was without mentioning all about Kondratieff cycles.

The waves were discovered by the Russian economist Kondratieff who investigated economic data and found a pattern. A pattern is like a history that repeats itself. There will always be crashes, depressions and Kondratieff related these in the context of an economic system.

To me it is a type of technical analysis in a fundamental (financial-economic) environment. Pure technical analysis is only about stock prices and not about valuation, economic waves are about predictable movements in fundamentals that move stocks and the whole financial world.

One of the main issues with these waves is that if you think they exist, the next question is: what is the length of the wave and its components and when is it transition from one movement into another? According to this guru the transition was in 2005, some other articles indicate that the transition was in 2000. If the waves started in the 18th century these five year bias is insignificant to discard the theory. Still, it's a theory.

When financial markets are as they are now, turbulent and insecure, than every single analysis may keep investors at ease or may direct their focus. Whatever analysis you use, you won't be able to predict the (nearby) future...

When thinking of it, I can now understand that fund managers are not popular when they support such a theory. Just imagine the impact when you tell clients that the next 20 years the stock will decline or at best will move sideways... These will not likely invest in the fund of such a manager...

H.J.B.

© Hans Bool