Brenner & Kondratieff Waves v Economic Confidence Model

Armstrong Economics Blog/Understanding Cycles Re-Posted Mar 25, 2023 by Martin Armstrong

COMMENT: Marty, I began following you in 1985. That is when everyone was using the Kondratieff Wave and admitted it averaged 45 to 60 years. They were all predicting another Great Depression. You were the only one right back then as well. I remember your advertisement in the Economist saying a new Private Wave was beginning. The ECM has called every turn ever since and even to the very day.

Now the Brenner Chart is floating around all because it points to 2023.  The 1999 turning point which was supposed to be the high, was not just off from the stock market and the 2000 Dot-Com Bubble, but 1999 was low in gold. The 2019 target was also off for it was 2020 which was a low.

I think both the Kondratieff and the Brenner cycles have caused more harm than good in furthering cyclical analysis. You are right. They were commodity based not economic-based.

I just wanted to share my observations because people need to understand the difference.


REPLY: Oh yes. I remember 1985. It was high in the dollar and the British pound hit nearly par dropping from $240. Yes, we took the back cover of the Economist for 3 weeks during July 1985 to announce the start of inflation and the Private Wave. I was shocked that people held on to those advertisements and we would get letters even 2 years later.

The Kondratieff and Benner cycles were constructed during the 19th century. You cannot create a model on Wheat and then try to use it to trade Copper. Sometimes it will line up, and other times it will not.

Both Kondratieff and Brenner waves were not just based on commodities/sunspots, but they were in turn influenced by war and climate, unbeknownst to either. Kondratieff and Brenner followed agriculture/commodity prices when agriculture accounted for 70% of the GDP pre-20th century. That only began to decline from 1850 forward, dropping to 40% by 1900 as the Industrial Revolution emerged with the invention of the steam engine. Then there was climate change. The Little Ice Age bottomed in the 1600s.

Then there was the volatility in weather that also impacted the commodity prices. This too has contributed to the inaccuracy of both waves.  During the late 18th to early 19th century, it was still very cold and the ground would freeze down a couple of feet preventing winter crops. The ground froze to a depth of 2 feet according to John Adams. When John Adams set out to travel to Philadelphia, it was bitterly cold and there was a foot or more of snow that covered the landscape that had blanketed Massachusetts from one end of the province to the other. Beneath the snow, after weeks of severe cold, the ground was frozen solid to a depth of two feet. I grew up near the Delaware River. NEVER in my lifetime did I ever see the river frozen as you see in paintings of Washington crossing the Delaware River. In a letter to his wife, John Adams wrote:

“Indeed I feel not a little out of Humour, from Indisposition of Body. You know, I cannot pass a Spring, or fall, without an ill Turn — and I have had one these four or five Weeks — a Cold, as usual. Warm Weather, and a little Exercise, with a little Medicine, I suppose will cure me as usual. … Posterity! You will never know, how much it cost the present Generation, to preserve your Freedom! I hope you will make a good Use of it. If you do not, I shall repent in Heaven, that I ever took half the Pains to preserve it.”

On September 8, 1816, Jefferson described the weather in a letter to Albert Gallatin:

“We have had the most extraordinary year of drought and cold ever known in the history of America. In June, instead of 3¾ inches, our average of rain for that month, we had only 1/3 of an inch; in August, instead of 9 1/6 inches our average, we had only 8/10 of an inch; and it still continues. The summer too has been as cold as a moderate winter. In every state North of this there has been frost in every month of the year; in this state we had none in June and July but those of August killed much corn over the mountains. The crop of corn through the Atlantic states will probably be less than 1/3 of an ordinary one, that of tobacco still less, and of mean quality.”

Obviously, the Kondratieff and Brenner Waves did not understand the external forces. The climate was impacting the food supply, there were also wars. This is why their waves have not been consistent. If we extend the K-Wave 54 years from the commodity high in 1919, that brings us to 1973 which missed the end of Bretton Woods in 1971 by 2 years, but it was near the OPEC Oil crisis, which was imposed in retaliation for helping Israel in war. The Dow Jones Industrials peaked in January 1973 and crashed into December 1974. The Brenner wave did not bottom until 1978.

Another 54 years from there will bring us to 2027 while the Brenner Wave targeted 2019 and projects the low in 2023. Wheat peaked in March 0f 2022. So you can see if any of these targets were to actually work on time, it tends to be more of a coincidence rather than an accurate forecast. So I can see what you say that they have perhaps led some to think cyclical research is snake oil. It is so important to understand that you cannot create a model on potatoes and then use it to trade the Dow. We must understand the nature of markets to comprehend what we are really looking at in the first place.

There is a cycle of industrialization as well. Rome began as an agrarian society and moved toward trade, which brought them into conflict with Carthage. We see this cycle even in their coinage. The first silver coins of Rome were struck using the monetary system that was Greek in origin from the days of Athens and Alexander the Great. Only after the Second Punic War did Rome create its own monetary unit which was a debasement (reduction in weight) from 6.5 grams to 4 grams. That reflected both the inflation due to war, but also the rise of Rome whereby they no longer cared about complying with the Greek standard but set out to establish the Roman standard. To this day, many denominations still retain derivatives of the word “denarius” such as in the Iraqi Dinar or the French denier. The Germans called it the pfennig and the English adopted that as the penny.

Rome itself became more like New York and grain was imported from Egypt. As agriculture became more of an import, Rome blossomed like New York in the arts and culture. It built the massive port of Ostia which was celebrated on the coinage of Nero (54-68AD) securing the food supply.

The shift toward industrialization in the Roman Empire also resulted in a decline in birth rates for children as we see in modern times. Large families were needed in an agrarian society, but not so much in a developed society – hence the family laws of Augustus. We see the same patterns repeat throughout history.

The first known Clean Air Act occurred in 535 AD by Emperor Justinian in Constantinople. He proclaimed the importance of clean air as a birthright. “By the law of nature these things are common to mankind—the air, running water, the sea.” Even Cicero wrote about pollution in the ancient city of Rome. This went hand and hand with developed societies and urbanization.

Joseph Mois Schumpeter (1883-1950) was an Austrian economist, educated in Vienna. He taught at Czernowitz, Graz and Bonn. In 1932, he moved to Harvard where he taught until his death. Among Schumpeter’s writings is Theory of Economic Development (1912), Business Cycles (1939), Capitalism, Socialism and Democracy (1942), and History of Economic Analysis (1954).

Schumpeter developed a theory of trade cycles and growth; he argued that abnormal profit was the entrepreneur’s reward for innovation. He predicted, however, that the scope for innovation would be declining in the course of capitalist development as competitive market structures were replaced by monopolies. He believed that capitalism would gradually evolve into socialism. Like Malthus, he could not look into the future and see all the technological advancements that would constantly create waves of new innovation.

In 1939, it was actually Schumpeter who suggested naming the cycles “Kondratieff waves” in his honor. To explain the Kondratieff Wave, Schumpeter called them waves of innovation that result in waves of creative destruction. Each wave of some new innovation destroys the last. Cars wiped out horses & buggies. The internet is wiping out local stores, and the post office, as technology has introduced streaming that has wiped out VCRs and DVDs, and even movie theaters. The cryptocurrency advocates promote the end of central banks and paper currency.

There has always been a cycle of innovation. That was one of Joseph Schumpeter’s main theories to explain the business cycle. For example, first, there was the Canal Bubble that peaked during the Panic of 1825. There was the invention of the telegraph followed by the telephone. The ancient Romans had invented the first version of the Pony Express and could get a letter from Britain to Rome in about 7 days. That too was celebrated on the coinage of Emperor Nerva (96-98AD).

This age of communication with the Pony Express and stagecoach travel was followed by the invention of the steam engine. That gave birth to the railroad boom which lasted from the 1860s and peaked in 1907. It was on May 10th, 1869, when the Union Pacific and Central Pacific railroad lines joined 1776 miles of rail at Promontory Summit, Utah Territory connecting the East and West by rail. The Railroad Barrons became famous millionaires and that innovation boom peaked initially with the Panic of 1893, but the final rally in the railroads peaked in 1907. Thereafter, the combustion engine took over for the next wave of innovation giving birth to the automobile took over and peaked in 1929, tractors, and air travel.

On January 1, 1914, the world’s inaugural scheduled flight with a paying passenger hopped across the bay separating Tampa and St. Petersburg, Florida. Planes were used during World War I, but after the war, there were thousands of unemployed pilots and a surplus of aircraft along with an appreciation for the future significance of this new technology.

It was after World War I that civilian airliners began to emerge. The Fokker Trimotor built in Europe by the Dutch with an 8-12 passenger capacity was the most popular airliner in the 1920s. It had a range of about 600 miles. World War II was coming into play when the USA built Douglas DC-3 with a capacity of 28 passengers. It had a range of nearly 1500 miles. The DC-3 made its maiden commercial flight in 1936 between New York and Chicago and thus the airline stocks were the big innovation for the rally into 1937.

It was 1938 when televisions first began to be commercially available. It would be after World War II when this became the next real innovation boom. It was 1954 when color RCA TV C-100 systems were sold across America. By 1960, there were four debates between John F. Kennedy and Richard Nixon that were broadcast and changed the manner in which presidents would campaign. By 1969, Neil Armstrong walked on the moon for the first time as millions of American viewers watched live on network TV.

Of course, we have the internet boom in 2000, etc., and there is a clear cycle of innovation that Kondratieff and Brenner could not see before even the invention of the combustion engine that led to tractors changing agriculture forever. There is a difference between when something is invented and when it becomes commercially viable.

For example,  the FAX machine was actually invented by the Scottish inventor Alexander Bain (1811–1877) who was famous for being the first to patent the electric clock and was also involved in installing the telegraph lines between Edinburgh and Glasgow in Scotland. He could see in his mind’s eye that the Morse Code of dots and dashes invented several years earlier by Samuel Morse, could take an image and transmit it by reducing it to a binary image. He envisioned the first fax machine. In 1846, he was able to reproduce graphic signs in laboratory experiments. He applied and received a British patent #9745 on May 27, 1843, for his “Electric Printing Telegraph”, but it took more than 100 years to actually become usable. We have embarked on the next wave of innovation that includes quantum computers and Artificial Intelligence.

Consequently, when you are looking at long-term cycles, a few hundred years is not enough data. If Kondratieff were alive today and based his study on just the current system, he would be focusing on services rather than commodity-based economies. Agriculture has fallen to just 1.41% of the civil workforce.

It is simply vital to grasp the very nature of the data that you are intending to use to create models, which is itself in its own cycle of innovation. This is why the Economic Confidence Model is totally different. It is NOT panic on any single sector. It is based on the boom and bust movement irrespective of the sector and it embraces the entire world, not a single economy. Back-testing revealed that not only did the Roman Monetary System collapse in just 8.6 years, but this cyclical frequency appears throughout the ancient monetary systems globally.

There is a lot more hidden behind the cloak of what people think is just chaos.

The Fed Does Not Back Down

Armstrong Economics Blog/Interest Rates Re-Posted Mar 22, 2023 by Martin Armstrong

COMMENT: Marty, it’s refreshing to have Socrates that is totally unbiased. It projected continued rising rates into next year and the Fed just proved its point. It is not backing down.

Thank you. Socrates is very enlightening.


ANSWER: I know there were a lot of talks that surely the Fed had to lower rates and start QE all over again. Most of those sorts of comments have no real experience in markets. They just mouth a lot of hot air. Perhaps instead of putting masks on cows, we should do that on the shills. The Federal Reserve had no choice but to raise interest rates although it was just by a quarter point. Not to do so and the Fed would lose all credibility and the market would then not take them seriously.

You MUST understand that this crisis has unfolded because too many banks were wrapped up in WOKE culture and hired people who were UNQUALIFIED to run risk management. Some were more excited about cross-dressing as a woman and winning the Rainbow award in banking than actually protecting the bank from the risk of rising interest rates.

In a statement released at the conclusion of the meeting, Fed officials acknowledged that recent financial market turmoil is weighing on inflation and the economy, though they expressed confidence in the overall system. “The US banking system is sound and resilient.” They had no choice but to make this statement.

“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain.”

The Fed is saying that their rise in rates will in fact reduce inflation and economic activity. The banks have this yield curve risk and that is different from the 2007-2009 crisis where the debt was based on fraud. Here, the debt is US Treasuries so they are not going bankrupt from that aspect, but it is a liquidity crisis.

If these people who scream loudly but know nothing really about finance keep up the nonsense, they will only add to the uncertainly. This inflation is accelerating thanks to the war.

Chaos & the Secret Order to Everything

Armstrong Economics Blog/ECM Re-Posted Mar 18, 2023 by Martin Armstrong

Economics is the ONLY field where cycles are denied. Moreover, people do not even comprehend how COMPLEXITY emerges. Alan Turing was a brilliant mathematician who is probably the father of computers for he built the really first computer to break the German Enigma Machine. The man was Alan Turing. He invented the computer and broke the German Enigma Code. You can watch the movie The Imitation Game to get a general idea of his achievement.

But Turing did something even far more astonishing. He had a theory that within nature, what appears to be chaos was just a mask that hides a natural order. He was the first to think that there might be a mathematical order that defines nature. There is a mysterious aspect of Morphogenesis. All the cells in an embryo are identical. Then the cells begin to clump together and actually become different from each other. The mystery was how identical cells know to form different things such as skin, eyes, brain, or bone. There is no central command center.

Turing 1952 Morphogenesis

The phenomenon of Morphogenesis is what is the essence of mystery. This process becomes self-organization. Before Turning, absolutely nobody had any idea of how this process even worked. It was also a great mystery of life itself. It was Turning who published on March 15th, 1952, the Ides of March 3.14, his mathematical explanation of Morphogenesis. Turning’s formula was revealing for it uncovered a secret order behind the mask of chaos. Despite being one of the most brilliant minds ever and all his contributions even breaking the German code, because he was a homosexual, a judge order him to prison or subject him to hormone injections to cure him. He committed suicide on June 7th, 1954 because of the abuse of the government which ignored all his contributions.

What Turning discovered in nature, was that there is a hidden order in which identical cells then change and become specific parts of the end result without any specific coding. What would appear to be simplistic formulas, suddenly emerged into a complexity that baffled the human mind. This is what I discovered in economics. A secret cycle that defines the complexity which we also cannot see with the naked eye.

This is why different cycles unfold in all the sectors such as metals, commodities, share markets, currency, bonds, etc, and when they align that is when we get the superposition events. I will explain more in my forthcoming book on the Economic Confidence Model. One bubble will be in the real estate markets, such as 1792 and 2007-2009. Other bubbles took place in commodities such as in 1919. Still, others took place in currency markets and capital concentration such as the 1989 peak in the Nikkei in Japan or the 1929 bubble in the USA.

In 2020, we warned that this cycle would be a debt crisis wave, but also a commodity wave with rising inflation and interest rates into 2024. We must understand that each bubble is different for it all depends upon the cyclical aspect of that particular sector and does that line up with others to produce a super-wave that becomes the bubble.

Right now, we have a crisis in banking because far too many banks have just listened to the mainstream media and failed to understand that interest rates would be rising – not declining. Since 2020 we have been warning that interest rates were at a 5,000-year low. A simple bounce to just 5% would be devastating. Many banks attend our conferences because they are sophisticated and do not make hedging decisions based on the latest headline on MSNBC.

I am working hard on having Socrates articulate the complexity. I hope to roll this out this year – ASAP. My personal interpretation is generally on point, but not always. What looked to be dominated by geopolitical events in April, appears to be combined with the banking crisis, and in all honestly, I could not imagine that the FDIC even considered not covering 85% of the deposits. I should not have had to even explain that doing that would mean that small businesses have systemic risk in all banks. I actually had to explain there would be a major banking crisis in April that would make the Great Depression appear like a dress rehearsal.

As such, this banking crisis does not appear to be finished. It will still move into April 10th or so. Then the ICC issued a criminal indictment for Putin when they have no such jurisdiction by their own authority. They have become yet another political tool of the Neocons determined to create World War III.

We have entered the period of COMPLEXITY where we are not looking at a single sector in a bubble. We are looking at a really dangerous contagion of COMPLEXITY and the Neocons could care less about the economics. They have control of the White House and this is their chance and they are NOT backing down.

God help humanity!

Interview: Neocons, Global Warfare, Digital Currencies, Bitcoin

Armstrong Economics Blog/Armstrong in the Media Re-Posted Mar 18, 2023 by Martin Armstrong

Watch the video above or click here to listen to my latest interview: “Neocons, Global Warfare, Digital Currencies, Bitcoin.”