GO FOR gold is the dire advice of Ian Gordon, financial historian, retail broker and in particular, strong believer of the Kondratieff cycle, which currently positions the mainstay US economy on the cusp of a catastrophic investment winter due to high levels of debt. Michael Quinn reports from Singapore
Opening the Asia Mining Congress in Singapore – which suggests the organisers have a sense of humour* – Vancouver-based Gordon's case for disaster was based on the massive US Government, corporate and personal debt currently totalling around $US40 trillion ($A56 trillion). And according to Gordon, that doesn't include unfunded US Government liabilities of $50 trillion.
Harbingers of the doom ahead included the beleaguered airline industry in the US and the struggling car industry, with bankruptcies said by Gordon to be the best way to "wring debt out of the economy".
The Kondratieff cycle is a theoretical long-term cycle ranging from boom to recession over a period of 50 years or so upon which shorter-term business cycles are superimposed.
Based on statistical observations by Russian economist Kondratieff, the explanations for these long waves in economic activity usually rely on a bunching of significant innovations like petrol engines, cars etc that give an impetus to economic activity for several decades before their impact wanes.
The current cycle – the fourth – started in 1949, with "spring" becoming "summer" during the 1960s and 70s. The Kondratieff "autumn" began in August 1982, with the Dow Jones Industrial Average rising from 750 points to a peak of 11,750 in January 2000.
"That huge bull market was akin to the previous autumn stock bull market that started in 1921, when the Dow bottomed … at 66 points," Gordon said.
"The peak was reached in early September 1929 with the Dow at 381 points … that peak signalled the start of the 3rd Kondratieff winter (deflationary) depression, although it took another two years for that to become apparent."
Gordon believes the "petrified" US Federal Reserve has clouded the true situation with lower interest rates and a flood of money.
"This colossal monetary stimulus has re-ignited the stock market, engineered a huge speculation in real estate and alternative investments (particularly commodities), and added copiously to debt," Gordon said.
"This will end in tears.
"The outcome is assured and adjustments will be very painful, more so than they were in the 1930s because this time everything is much bigger than it was then.
"Participation in the stock market is much greater today than it was in 1929 and the comparative rise in the two bull markets strongly favours the 1982-2000 bull market over its 1921-1929 counterpart."
Plus there is far greater public participation in the real estate market this time round, said Gordon.
In terms of gold equities, Gordon tracked the performance of former American heavyweight Homestake, whose shares went the opposite way to the Dow Jones index during the 1930s (and onwards), despite the fixed price of the precious metal.
