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 longwavegroup.com 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.

5 Comments »

  1. gg,

    Good info – thanks! Although you don’t mention it here, I assume silver is also one of the best investments in this Winter Cylce. In regards to cash holdings, what percentage of a portfolio do you recommend holding in fiat cash – 10%? I believe you have mentioned before having some physical cash on hand in case there is a disruption in the banking system. For the remainder, do you recommend a basket of foreign currencies, like a currency ETF?

    Regards,
    sw

    Comment by sw — April 20, 2011 @ 3:23 pm

  2. SW,

    I use physical gold and silver interchangeably in my blog posts. I don’t want someone to think that gold is the better investment and choose not to purchase any precious metals because they can not afford gold.

    If you can afford either one, do 50/50 split. GG doesn’t really pay that much attention. She buys what is “cheaper” at the moment that she has money available. If silver is 1/5 of its way to its target price and gold is 1/3, I buy silver. If silver is reaching its second wave and gold is getting ready to take off again, I buy gold. It tends to even itself out as I move along this cycle. If I could only afford silver, and I am sure at some point, that will be the case, I will buy only silver.

    Regarding cash, 10-20% would be the range. If you can hold good foreign currencies (sometimes that requires large amounts of investment monies) you could go up to 30%. GG is worried about the quick access to cash. If you have those currencies and fiat money tied up in a 401k, they are not liquid. Remember how during the last crisis, money market accounts were not liquidating in a timely manner, you had to wait. If you have some in a foreign bank account, quick access could be a problem depending on how it is set up.

    I think you may be asking how much cash should you have as very liquid, in your hand or the nearest brick and mortar bank. GG’s suggestion is 2 mos basic living expenses (that would include things you couldn’t put off like food, medicine, auto gas, heating gas, electricity, water, etc. Rent and mortgage could go unpaid for a few months without losing your shelter in that all-bank-closing situation.)

    The cash in your hand is if all banks go down and you still need to live (2mos of basic expenses). The investment cash is in a bank(s) or foreign account or currency index and it is a currency investment.

    Hope that helps.

    gg

    Comment by totallygroovygirlfriday — April 20, 2011 @ 5:19 pm

  3. “The winter cycle runs 20-30 years”.

    Then it appears I won’t make it till ‘spring’, so from GGs outlook I take it that means stocks & rental property are effectively off my list.

    Aside from PMs … any thoughts on what other venues might be worthwhile during a long k-wave winter?

    Comment by Jack — April 21, 2011 @ 3:47 am

  4. Jack,

    PMs will be the best investments during the winter cycle. And you should have some in case of a currency crisis. But just because PMs are the best doesn’t mean that you can’t invest in stocks and real estate. Good deals in any investment class can get you a good income, if that is what you need. The winter cycle just means that debt is contracting, so gg would not use a lot of leverage on those deals. In addition, don’t expect the same return on those investments as you received in the fall cycle.

    There are always good real estate cashflow deals and real growth stocks with good dividends in any season, gg and others are just suggesting the best, not the only, investments for the current season.

    Jack, in your case, I would purchase physical gold and silver that you can sell closer to the top for cash to pay for advanced medical bills/hospital stays and protect a portion of your net worth against a global currency crisis. Then invest the rest in stock dividends and/or cashflow real estate for your monthly income. (GG is suggesting cashflow real estate, because during the winter cycle, the real estate will not appreciate, but you can still make money on the cashflow part of the deal.) The percentage will depend on your monthly income needs. These are general statements, your individual case may have other details that would impact that suggestion. Such as, is your current home paid for, have 90% debt, your current and possible health status, what dependents you might have, etc?

    Jack, keep in mind that the winter cycle started in 2000, so this cycle will end around 2020 or 2030.

    gg

    Comment by totallygroovygirlfriday — April 21, 2011 @ 9:17 am

  5. […] we are already sick of this winter phase of the K-wave, long wave, economic cycle. When can we expect the Spring Cycle and what might that look […]

    Pingback by So, what does the spring cycle of the K-wave look like? « muses of the moment — April 22, 2011 @ 12:33 pm


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