The Long Wave “Winter of Discontent”!


At the present time, deflation is the greatest and most urgent concern throughout the global economy. Over the past couple of years, producer prices have fallen throughout the developed economies. Consumer prices have been falling for the last consecutive six months in France, Germany, Hong Kong, and China. Japanese wages have actually fallen by 4 percent over this past year.

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Deflation is a widespread global problem. The global central bankers had believed that printing more money would be the answer. And yet, deflation is now a more serious threat, as global central bankers are presently realizing that it cannot be prevented or reversed.

These ‘academic pinheads’ have failed to realize that we are in the contraction phase of a much larger business cycle which can NOT be eliminated. We are currently experiencing excess capacity with crashing aggregate demand. All that the central banks have managed to accomplish was the “wealth effect” which, in turn, created an artificial rise of global equity markets and nothing more.

The global economy is now experiencing the Kondratieff Winter! In March of 2000, the start of the imploding tech shares bubble marked the beginning of Kondratieff’s Winter Correction Wave. After 1971, money creation became limitless and debt kept on growing, despite entering Kondratieff’s Winter. This system by the central banks is doomed to fail before the end of the cycle, which will occur sometime between 2020-2021.

When gold is part of the monetary system, excessive debt is always eliminated from the system during Kondratieff’s Winter (deflation).

Since that time, the Fed has fought by all possible means the installation of the “Correction Wave,” since the amount of debt is so high that allowing deflation to occur would lead to a never before seen catastrophe. As a matter of fact, we have long passed the point of no return, and the only solution that the FED has is to devaluate the dollar, regardless of whether that means creating a new currency.

The FED is systematically keeping Kondratieff’s Winter from taking hold and feeding a series of speculative bubbles. It is my view that the debt margin for playing the stock market is linked to the euphoria as seen at each peak period of time (2000, 2007, 2014). In both the peaks of 2000 and 2007, the FED’s easy money fueled speculation (stocks and real estate) during each time and thereby marked the start of a new crisis. Those three pivotal periods, 2000-2001, 2007-2008 and 2014-2015, are each separated by a seven-year period.

chart 1

The unsung genius, Kondratieff, and his economic business cycles will, in fact, play out. We will witness a debilitating period of contraction and crisis. This period is most likely to appear obvious to Main Street very soon and will continue to persist for an additional three to five years! I am titling this as The Great Reset”.

Chart 2

The FEDs’ balance sheet will continue to grow. Public debt will never be paid back.  In fact, there is legislation pending that currently avoids any debt cap. The FED is looking out for Wall Street and, most certainly, not the general public.

The collapse in global economic activity is a direct result of too much debt. Debt was intended to increase consumer consumption, but there was a total lack of global aggregate demand. We are currently in the bust of a classic boom/bust cycle, however, this is the key point – it is not only companies and individuals with excessive debt, but, countries, as well.  

Whatever the trigger point is, failing is inevitable, according to IMF’s Managing Director Christine Lagarde, (, who herself states, “the crisis isn’t over,” and no real economic recovery will occur without this crisis finishing the job it has started.

Just like all major long term/big picture trends and cycle changes, nothing happens quickly. Its very much a process, and the market will continue to move in a direction that makes no sense longer than most traders and investors think. Just like those who warned about the 2001 market crash, 2008 financial crisis, real estate crash, and now the 2016 stock market crash, most of these big picture analysts (like myself) see these things coming well in advance – sometimes 1-2 years before they happen.

We warn about these events happening and slowly position ourselves to not only avoid the crashes, but to profit from them. But these take time to unfold as these are multi-year cycles, and they do not turn on a dime.

Things are maturing and many asset classes are starting to make moves, as expected, but US stocks have not fully topped just yet…

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Chris Vermeulen

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[Image Courtesy of Wikimedia]


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