Diary of a Financier

Long Waves

In Economics on Wed 21 Dec 2011 at 07:03

Long waves and secular trends. I love this stuff. This entry offers a bit about the undercurrent of macro trends I’ve kept in mind for the past 2 years or so.

This entry has idled in my pending folder as a draft for a while now, but a recent research piece by Citi’s Chief US Equity Strategist Tobias Levkovich prompted me to publish it. I begin with Mr. Levkovich’s remarks:

Six forces, including a housing recovery and energy independence, will align to spark the start of a bull market at some point during the next 12-18 months…

Levkovich cites a domestic manufacturing “renaissance,” fiscal reform, an emerging investment class in their late thirties that will rival baby boomers, and the further innovation of smart mobile devices.

“Every 15 years or so, the U.S. undergoes substantial technological change that can act as an economic propellant… The sheer magnitude of mobility growth brings computing, the Internet, purchasing and entertainment in one’s palm and argues for significant investment in software, infrastructure, bandwidth and more efficient chips, batteries and production techniques. Fortunately, the U.S. remains the global IT leader.”

On demographics, Levkovich writes, “the most fascinating development is the size of the baby boom echo and specifically, the 35-39 year old age group that will be growing meaningfully in the next few years.”

I agree on some level. Among a few other caveats, I think Mr. Levkovich’s “12-18 month” timeframe may be a bit premature. Nevertheless, I’m on-the-record citing a resurgent American bull market led by demographics. I can resolve that expectation with some technical patterns I continue to cross…


A number of trends (most) in the US Macro economy show definitive, wave-like patterns. For example, I present the charts of US CPI and the 20-year Treasury yield, both from 1950-present:


US 20-year Treasury yield

(Treasury yields 1919-2010 here.) Both look like a bell curve or a wave. Since we’ve nearly completed these round-trip cycles, I keep them in mind at all times. They could be valuable escape hatches for our economy at a point where things look hopeless. I’ve always touted the opportunity for the US economy to hit escape velocity once we hit a period of organic demand growth at the beginning of a new population surge. Thus, here’s another important cycle: Population Growth Rate

Comparing the chart of the US Population Growth Rate to something like GDP Growth Rate or inflation, you’ll notice that economic growth lags spurts of population growth. I have two explanations for that. First, bulges in births take at least 10 (arguably 25) years before contributing anything toward consumption, by simple principals of maturation and carbon footprints. (Peak consumption for an individual actually occurs around 45-55 years old.) Regardless, I find something related to the other bell curves presented herein: round trip peak to trough action.


Since the creation of the modern Federal Reserve in 1913, the US has weathered monetary policy both neutered by the anchor of a gold standard (1971) and liberated by the boundlessness of fiat (circa 1976). These polar extreme monetary policies characterize each leg of the rise & fall patterns presented in the charts herein. While I’m working on a dissertation that focuses on this specific economic issue, my hope is that the future of American economics blends these extremes (Gold Standard v Fiat), rearing a pragmatic new regime from somewhere in the middle of the monetary spectrum.

The natural ebb and flow suggests the trends will resurrect as ever. So you know I’m not cherry-picking, here’s some more charts illustrative of the same mechanics, courtesy of DoubleLine’s Jeffrey Gundlach:






  1. […] that the ratio’s trough to peak looks like the inverse of every macro long-wave I’ve previously discussed.  For example, CPI or the 20-year US Treasury yield: 20-year US Treasury […]


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