Fifteen-year downward cycles


I have been writing for years about the dangers of fifteen-year downward cycles. Since the 1800s the stock market has moved in 30 year waves, peaking in bubbles and ending in troughs. Technology, warfare and politics are all related to these cycles.

Several years ago I began researching the principles outlined by Austrian economist, Joseph Schumpeter, on how technology and innovation create industrial revolution that alters the way we live, work and earn and keep money. We reviewed five great economic eras that began in the late 1700s: ERA #1: 1785-1845-fueled by water power-60 years. Textiles and iron works were the backbone of growth industries. ERA #2: 1845-1900-fueled by steam-55 years. Railways and steel provided the main growth in this era. ERA #3: 1900-1950-fueled by the internal engine-50 years. Electricity and chemicals provided the major growth. ERA #4: 1950-1990-fueled by T.V., the jet and electronics-40 years. Petrochemicals and aviation were the innovations which became mainstream in this period. ERA #5: 1990-current-fueled by digital networks- 30 years+ ? Software and new media create the growth elements in this era. Each of these eras was fueled by a new innovation and that innovation started a cycle causing the stock market to rise, first based on the reality of increased productivity from the innovation. Then later in each era the stock market became overextended based on greed. You can gain deeper insights about why this happens by going to http://www.garyascott.com/reports/173/ to read a report, "Seven Head Starts". For these particulars, start on page 26 of the report.

For the investments we do make right now we need to recognize that we are at the beginning of a 15-year down cycle. This is a time that is very similar to the early 1970s. Based on this, we can expect all the big companies that have been the blue chips to suffer.

To survive and get ahead in these dangerous times requires safer forms of income and investments. Smart investors in the 70s held back. Do not rush into high-risk investments just to increase earnings. Later in the cycle (if it repeats the 70s) interest rates will invert (short term rates will rise over long term rates). Short term CDs will be attractive. Despite low interest rates, load up on cash. It is better to lose a little income than a lot of capital! Create a barbell portfolio with a few high risk-high potential investments backed by lots of safe short-term bonds or cash.

One place to look for the few high-risk investments you make is in high tech. Our need as investors to stay on top of scientific events is important because we are in a time of great technological change. The best shares today are the unknowns that will become the bastions of the future. Microsoft was an unheard of firm growing in a garage in the 70s, before it became leader of the information era.

There are many areas of technology that can have a profound impact on our portfolios. For example read about the next wave of quantum computers at http://www.garyascott.com/inspired/372/. You will see how this can change every investment we might make! Another good high tech idea was recently sent by eClub advisor Teddy Christiansen who wrote about the bio-medical Icelandic company DeCODE GENETIC, which is researching genetics. DeCODE claims to have a competitive edge in this field because, along with Eskimos, the Icelandic population is the most genetically pure race in the world. This makes it very convenient for genetic research. The company was founded in 1996 and is based in Reykjavik, Iceland. DeCODE genetics is a population-based genomics company conducting research into the inherited causes of more than three-dozen common diseases. You can learn more by going to http://www.decode.com

Teddy is a member of the advisory board of our International E-club. You are free to contact Teddy at about anything related to his 42 years experience with International Banking by E-mail at Teddy.Chr@Private.dk

Another field to watch for the future is nanotechnology, which has lots of money being poured in now. The National Nanotechnology Initiative (NNI), was started by President Clinton. A $422-million budget was added to help nano science and is still on track for fiscal year 2002 with a 23% increase even while the Bush administration has cut funding programs of most federal agencies that support research and development (see the NNI Web site at www.nano.gov). Many nano investments are being made with over 30 nanotechnology research centers and interdisciplinary groups established at universities. This is up from nine that existed two years ago. Nanoism does not, moreover, confine itself to the U.S. In other countries, total funding for nanotechnology jumped from $316 million in 1997 to about $835 million this year, according to the National Science Foundation (NSF). A great source of information on this and other technology of the future is the Scientific American magazine. Learn more at www.sciam.com and until next message, have good global investing!

Gary


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