muses of the moment

April 20, 2011

What does the winter cycle of the K-wave look like?

The Characteristics of Winter Investment Cycle (start of the winter cycle was January 15, 2000):

  • Confidence level: concern, then, fear, panic, and despair. We are between concern and fear right now, closer to fear.
  • Inflation level: fall of inflation quickens into outright deflation. The government is trying hard to fight against this. We are in stagflation at best right now. We will have inflation in prices because of a currency crisis, not economic growth. We are experiencing a deflation in debt (or credit). As discussed before, groovygirl believes we will experience a hyperinflationary depression (not a deflationary depression as in the 1930’s). A hyper-inflationary depression is defined as a hyperinflation in prices and deflation in debt causing a contraction in economic growth of at least 25% from tip to trough. We will not have a full deflationary depression because all global currencies are fiat and can theoretically be printed to infinity. But all the fiat currency in the world will not keep us from a deflation in global debt.
  • Credit availability: following credit crunch, virtually, no credit. We are in extreme credit crunch mode right now. It will continue to freeze and then disappear. The only credit available will be government backed. The US housing market is already experiencing this credit freeze.
  • Interest rates: fall in credit crunch, then rise, then fall much lower. We are in the first falling mode right now. For housing, I don’t think they will rise again as the government will mandate it to try and keep the housing market afloat. However, the rate of return on bonds will rise (as this is the only way they will sell) and this rise will affect certain sectors of business. Mainly, it means, no growth and no investment. Groovygirl believes this phase of rate increase is coming very soon.
  • Best investments: gold, cash, and then also bonds after credit crunch. (Because we have a completely floating fiat currency system in the world now, “cash” will be better held in some currencies more than others or in precious metals.)
  • Indication of season change to Spring: bottom in DOW. Remember, we will have a currency crisis and hyperinflationary depression (deflation in credit/debt availability and inflation in prices/expenses). It is possible to have a DOW at 30,000 with no additional real value. The stock market will continue to lose value throughout this season. A good stat to judge a low in the DOW with the fiat USDollar gimmicks taken out is the gold/DOW ratio. groovygirl is looking for a ratio of 1:1 or less. It is also possible to have a gold/Dow ratio at 1 that bounces around that number for a few years before reaching a final low.
  • The winter cycle runs 20-30 years.

The majority of this information comes from the folks over at the Groovygirl disagrees with a few of their predictions and has outlined those differences above.

If this was depressing, find out about the coming spring cycle. But in the meantime, protect your savings in the winter cycle by purchasing some physical gold and silver and holding long-term.

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