Kondratieff Winter Survival Guide 

Now that the winter is upon us, how can we best navigate this most challenging cycle phase of the Kondratieff Wave? This section is dedicated to providing guidelines and insight for that very purpose. First and foremost, we must not allow fear to permeate our condition or our decisions because obsessing about our woes prevents us from making the most objective decisions for our prosperity.

It’s no fun either. And the central theme of the Kondratieff Wave theory is that the destruction phase is most beneficial by providing the means for the renewal of prosperity that follows. It purges much needed excesses from the system that allow more creative progress to unfold that creates more prosperity for us all. Because historical evidence supports this, we should embrace it rather than fear it. Ideally, I would prefer the harshest, swiftest kick in the rear possible so we can begin anew with a better foundation sooner. Until then, we must adapt to the reality of prevailing market conditions so we can preserve our wealth and prepare for the Kondratieff Spring around the corner. So let’s now examine these conditions to help define where we are in this winter cycle so we can better manage our financial affairs.

We have entered the period of the cycle marked by a deflationary asset bust and slowing global GDP growth. Paper assets, including tangible assets such as homes and land, had appreciated for decades and were due to reverse course. However debt levels had risen over the past few decades to all-time highs and drove asset prices even much higher than they would have under previous cycles. Home prices in the US rose every year since the end of the Depression in the mid 1940’s through 2006, over 60 years, and thus still may
slide further until an equilibrium is found. The debt wave that just recently peaked was
fueled in great part by new financial alchemy of securitization through structured finance products that compounded the leverage even more. Clearly, the great de-leveraging of
assets will continue into the foreseeable future and thus it is prudent to avoid making any investments of securities tied to the credit process until this de-leveraging has run its course and the global banking system is on more solid ground.  

It may seem tempting to bargain for cheap financial stocks and others in sectors dependent upon financing, but I maintain they are a value trap until proven otherwise. These would include homebuilders, durable goods manufacturers, retailers, insurance, and consumer discretionary stocks among other sectors that have any meaningful exposure to the US economy. Sectors that are more favorable would include utilities, healthcare, biotech, consumer staple companies with significant foreign exposure, and energy companies. Companies most preferred are ones that have cash-flow positive operations or if in development stage sectors such as mining or biotech, have at least two years of cash on hand to see them through the worst of this credit cycle. Otherwise they may fall victim to excessive dilution to existing shareholders from raising capital at levels that may damage their capital structure.

I want to review some secular trends evident that are sure to sustain for the short and intermediate future that can provide a foundation to base investment decisions upon during this winter period. These themes have been reported on this site at length but are worth repeating here:

Hard Assets will outperform paper assets by a wide margin

Gold has proven to be the best performing asset class during a Kondratieff Winter

Stocks, especially in the US, will suffer from contracting GDP growth and malaise

Capital flows into assets classes in descending order of liquidity (see pyramid below)

Hyper-inflation is possible if governments use monetary re-flation to battle deflation

Preservation of wealth trumps investment return as the core strategy

Investors must remain more flexible than ever due to fast changing market conditions

Invest either against the trend most unsustainable or with the one most sustainable

The tickers below are exchange traded funds (ETF’s) that represent specific sectors:

TBT    ETF that is a bet against the 30 year long bond
GLD   ETF that is a direct proxy for physical gold. Each share buys 1/10 oz gold
GDX   ETF on blue-chip gold mining companies
SLV   ETF equivalent to GLD in silver
DBA   ETF on agriculture commodities such as wheat, corn, soybeans,etc.
MOO  ETF in the Agri-business sector of blue chip seed, fertilizer companies
ITB     ETF on US home construction (Short it)
RXI     ETF on US discretionary goods (Short it)
CYMGF ETF Claymore Natural Gas ETC is priced in Canadian Dollars
SKF    ETF bet against financials  (levered, best for speculative accounts)

Please note that ETF’s are subject to being impacted by regulatory changes that could affect their performance, so please it’s important to keep updated on these changes.
Recently, the Power Shares ETF on oil (DXO) was retired and share limit issues have dogged the US Natural Gas ETF (UNG). Many ETF’s do not accurately track their underlying index due to the day to day recalibrations in pricing and thus may lag an index over time. These vehicles should not be considered long term holds for these reasons.

Some of the content in this section was added to make our readers aware of certain principles related to paper fiat currency and central bank activity that threaten the purchasing power of all Americans. Since Americans receive their wages in USD and also purchase all the goods and services we need in USD, do we really want to have all or most of our assets also in USD? I would encourage our readers to seriously consider some form of hedging the USD either through gold or TBT, especially if they are dependent upon fixed incomes from SS or interest income from bonds.  

If you believe like we do that the time has come for a major inversion from paper assets to hard assets, then you may want to consider the securities above. Note: This does not represent a solicitation nor a recommendation for these securities. The author does endorse them for his own portfolio, but they may not be right for everyone. Please consult your financial advisor before making any changes to your portfolio.

John Exter’s Inverse Pyramid of Liquidity

The chart above best illustrates what to invest in during this period. In John Exter’s Inverse Pyramid of Liquidity, gold and cash are kings. This chart shows that during the winter cycle period investors increasingly trade down return for safety, triaging to the most liquid investment class and eschewing riskier assets. And what have we seen the past year or so? Investors dumping emerging market stocks and bonds, OTC stocks, real estate, etc and rushing into gold, cash, and US government securities, even driving the yields on all maturities lower than inflation to suggest that are willing to pay someone to hold their money. Such is the madness of a Kondratieff Winter. Much more is provided later in this section on Exter’s pyramid.

Hopefully, the ideas above can help you preserve your wealth during these chaotic and difficult times. I would like to offer one more idea for our readers to consider, especially those who are going through the toughest of times. I have found that the several of the books written by Catherine Ponder are ideally suited for guiding us in these extraordinary times. She remains the most prolific selling author of prosperity books ever and her messages are timeless. I would suggest that anyone seeking guidance in finding their way during periods of economic hardship read Prosperity Secrets of the Ages, one of her many great works. Others include The Dynamic Laws of Prosperity and The Millionaires of Genesis, among many others. They all emphasize a positive mental approach and using your higher mind to attain what you richly deserve. This wonderful material may be more useful than anything you can find anywhere for enduring prosperity.   

1. MUST READ The Risks of Believing that the Mayan Calendar ends December 21, 2012! - This article by Dr.Carl Calleman can be found at www.mayanmajix.com, a site devoted to an interpretation of the Mayan calendar wholly unique to other sources attempting to explain its significance. But you may now wonder- what in the world does the Mayan calendar have to do with the Kondratieff Wave? More than you could possibly imagine.

   The Mayan calendar has intrigued me to no end for a number of years, and like others I have soaked up all I could about this fascinating subject. I was well aware of their keen sense of cycles in time so when I launched this site two years ago I included material in the Esoteric section making reference to a link between the Mayans and economic super-cycles through the Mayan jubilee ceremony that erased debts and essentially re-booted their economy every 52 years (basically the same period as our K-Wave). But not until I came across the collaboration between the late Ian Lundgold and Dr. Carl Calleman was I able to make sense of what the Mayans were trying to communicate to our generation.

   Their message is as profound as anything ever recorded in human history and has its roots in the keen sense the Mayans had over cycles in time. However, the Mayans were not actually measuring time as we know it but rather the cycles of evolution of human consciousness that progress in a rather orderly fashion over billions of years. All other sources relating the interpretation of the Mayan calendar I know of are much almost exclusively focused on the planetary and galactic alignments coinciding with the end date of the long count December 21, 2012. Calleman argues the real end date is sooner and that it’s far more important to focus on the process leading up to it, instead of the drama of the 2012 date now being so sensationalized by some alternative media sources. He makes the case for the 2011 date and asks everyone to consider for themselves the impact of the historical progression shown by the calendar so they can now take the right steps.

   One such step is to consider the implications for the capital markets, and incredibly this article contains a chart that predicts timing and trajectory of the next major drop in the markets as predicted by the Mayan calendar. Naturally, to understand the truth behind something so profound one would have to invest some time in reading about the methodology behind this calendar to be able to ascertain its efficacy and relevance. However, it is made a bit easier when the calendar forces you to reconcile whether its accuracy over the millennia can just be explained away by millions of coincidences within such an orderly logistical framework. Fortunately, it’s not too much of a stretch at all. Its message is clear- we will endure a catharsis relatively soon that will serve as the dark before the dawn, so to speak. But what a dawn it will be!

   I urge our readers to invest time to research this so they can decide its relevance for themselves. To that end, I have recently added a video below from Lundgold that I feel is the best one to get the whole picture. It was made just months before he died a few years ago and I found it to be the most complete and cogent one he made. Hopefully, it will resonate with our readers and provide them with some much needed wisdom to make sense of this increasingly dynamic period of time we are all witnessing.

2. MUST READ Ian Lundgold’s Overview of the True Purpose of the Mayan Calendar - This video is a two hour presentation by Ian Lundgold made shortly before he died in late 2005. In his last performance, which I found to be the best of all of his videos, he graces us with wisdom from the elders into a message of hope that can help us understand and cope with the incredible changes ahead in the coming years.

   I chose to include this material here to complement our core theme of embracing the upheaval brought about by super-cycles and to establish a direct and meaningful link between the Mayan Calendar and the Kondratieff Wave. While the K-Wave measures the evolution of economic wave patterns since the origins of modern capitalism in the mid- 18th century, the Mayan Calendar measures our evolution in super-cycles over a period spanning billions of years. Yet still, both are similar in that they are based upon the immutable universal laws of nature. So let’s first get an overview of Lundgold’s take on the Mayan Calendar.

   Lundgold explains that the Mayan’s mastery of cycles was not rooted in measuring time but rather through the measure of the evolution of human consciousness over time. He makes the distinction by contrasting the Mayan view of time measured by cycles with our Gregorian calendar time measured by the movement of physical objects He then traces human evolution in stages referred to as underworlds that were designed to prepare humanity for the quantum leap into singularity. Each stage of the calendar has 13 periods (seven days, six nights) having similar themes that are repeated over the ages with each cycle being completed twenty times faster than the one preceding it. He shows us that history has repeated itself in large part because it has been hard-wired that way from the very beginning through a divine plan designed to trigger our evolution in a gradual, linear fashion until the transition to the next underworld stage. It is at these transitions when evolution accelerates at a spontaneous rate that produces transformative change. The calendar concludes in 2012 when the final underworld shift has been completed.

   I have included below a chart from Ian Lundgolds website (www.mayanmajix.com) so we can explore the direct link between the Kondratieff Wave and the Mayan Calendar. It appears they intersect in the mid 18th century at the point during the shift from the National to the Planetary Underworld, when Power replaced Law as the predominant theme among humans. The chart shows that this transition occurred around 1755 at the outset of the Industrial Revolution when the earliest economic data formulating the Kondratieff Wave originated through the introduction of power to national economies. Prior to that, economies and capital markets were relatively simple and primarily local structures. The application of power through advances in technology leveraged the production of goods and services to establish mercantile and then global markets. A new era was born that marked the steepest ascent of invention, innovation and prosperity the world has ever seen. Since that shift, more refinement and wealth creation has occurred in the past 250 years than during our entire previous history on Earth.

   The chart also shows that in early 1999, the shift from power to ethics began through the transition from the Planetary Underworld to the Galactic Underworld that is expected to culminate in early 2011 upon the final shift to the Universal Underworld. Presently in mid-2009 we are in the very late stages of the shift from power to ethics, so expect to see more reports supporting this shift coming to light such as the Bernie Madoff ponzi scheme and the financial crisis in 2008 that exposed unprecedented levels of power and greed by Wall Street, CountryWide, the ratings agencies, etc. These were examples of systemic abuses of power that were exposed and were met with demands for more ethical practices.

   It is important to note that the Mayan prophecy as advanced by Lundgold is in contrast to the conventional interpretation of the Mayan prophecy put out by the Western media and many New Age sources which are more centered on the rare physical  planetary and galactic alignments events occurring on a specific date, December 21, 2012. Sadly, such an approach is narrow in scope and lends itself more to sensationalizing the onset of doomsday than a protracted deliberation on higher truths. Therefore, in attempting to relate the K-Wave and the Mayan Calendar, I prefer to use Lundgold’s more meaningful approach that emphasizes a process of the evolution of consciousness rather than one more based on the bluster coming from a single event.

   So then what are the implications for our global financial markets when power finally gives way to ethics per the Mayan prophecy? Perhaps it implies that the wholesale collapse of the systemic infrastructure of our financial network is inevitable because over time it has proven to promote, further, and sustain power. Going forward, we can expect steady erosion in the support of and confidence in the fiat currency and fractional reserve banking systems globally and an ever louder demand for their removal. In fact, that process has indeed begun as Ron Paul and others are openly challenging the Federal Reserve, calling for an audit of its books and proposing to eliminate the Fed altogether. Last month, the BRIC consortium of Brazil, Russia, China and India (who now hold over 40% of the world’s dollar reserves) agreed to begin offering exchange credits among themselves to wean themselves off of the long-reigning dollar hegemony. Steadily and methodically, dated and entrenched systems are being overturned for ones that will serve the population as a whole much better. To that end, I would expect the IMF and World Bank to radically restructure one day to promote economic welfare instead of serve as economic hit-men. Please visit the article and video on complex self-adaptive emergent systems in the Prosperity Solutions section for some compelling and far “out of the box “ ideas on how the breakdown of these systems will play out. It concludes that while we may experience the mother of all shake-outs, new systems will emerge out of the chaos that will serve us all much better.

   We may soon be in the final throes of a fiat currency system that has gained more power and influence over time through its gradual acceptance by all modern industrial nations. Its impact has accelerated even further in recent years through the marvels of electronic supercomputers and though it may seem sustainable at first glance, history shows that every single fiat currency scheme ever created has failed miserably (i.e. the Romans, medieval goldsmiths, Charles II 1600’s England, France 1720’s.) The “higher truths” introduced by Lundgold indicate that the destruction of these institutions may be part of a larger pattern of renewal that favors more balanced systems better able to promote opportunity to more people. This theme complements the prophecy of Edgar Cayce, whose readings gave us very strong warnings that a “great leveling” must occur one day if we are to ever reach our highest prosperity. After seeing this video, you may also conclude that the process of power giving way to ethics has begun and that our global banking and fiat currency systems may ultimately implode under the weight of their own power. My humble advice to survive this winter- shift from paper assets to hard assets and maintain a helpful and hopeful outlook.

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3. Go Forward to Gold - Recently published in the conservative journal National Review, Go Forward to Gold traces the history of the dollar reserve system in place and exposes it for the fraud that it is. It makes the distinction between phony dollar reserves, based on fiat decree, and a gold reserve system by taking the reader through a remedial yet useful lesson on the balance of payments between nations. Proper attention is given to the way in which this dollar reserve system is uniquely suited for short term political expediency and how that directly furthers the cancer. It is well written and includes several key charts that have not been used yet on this site. It underscores the central investment theme of this section- make sure you own gold during a Kondratieff Winter.
   
   

4. Are There Cycles in Commodity Prices? - Here the Boneuil report takes aim at the relationship between commodity prices and long wave cycles. They integrate their analysis of long term commodity price trends into the Kondratieff Wave, the “rythym” wave of 54 years advanced by Edward Dewey, and with the sizeable work done by J.E.T. Rogers of wheat prices over several centuries.What they found was that although the long term cycle lengths varied over time, the characteristics noted during each cycle phase were consistent over time and that during economic winters commodity prices would rise substantially if the deflationary asset bubble was countered with monetary re-flation. This is consistent with my own viewpoint that these commodity hard assets would rise even as other assets are deflating.

   During the Depression, commodities fared poorly because gold and silver were fixed in price by the government(even though they traded much higher on the black market) and the sharp slide in demand sent most commodities lower. But we must remember that restrictive monetary policy by the Fed is what really allowed these commodity prices to plunge because there was no monetary inflation occurring to counter the weak demand. That is not the case now as we have “Helicopter Ben” at the helm of the Fed, one who has made a career of studying the policy moves of the Fed during the Depression and has vowed to inflate to any level to reboot the economy. This is why I am so bullish on hard assets, which are all priced in US dollars.