The terrible Kondratiev winter

There are a lot of people who think we are in the beginnings of a great secular bull market, similar to the ones that started in the 50s and 80s of the 20th Century.

Most politicians believe it, but not many of them know what the kondratief cycles are, neither they care about them anyway.

Kondratiev winter history

Kondratiev was so unlucky he was born in Soviet Russia. He was shot for his ideas.

His theory of cycles did not agree with Marxist doctrine about the end of Capitalism and the coming of perpetual Nirvana on earth.

He was also opposed to state confiscations.

No wonder he ended the way he did.

Kondratiev winter cycles

Kondratiev´s merit was because he succeeded in identifying the economic cycles in the recent capitalistic era.

He found some precise periods:

  • From 1790 to 1849 with the collapse of 1815 as its climax.
  • From 1850 to 1896 with its decisive moment in 1873.
  • From 1896 to, apparently, 1950.
  • The next started in 1950 to be continued until today. Historically this period should have ended. If it was the case our politicians would be correct and the financial crisis would be over.

These cycles are characterized by a similar duration and behavior.

The first lasted 60 years, the second 46, the third 55, and the present 65. However, it seems that the present cycle is lasting more than expected, unless we are already in “spring”. Talking about the spring, which would be the first phase of a Kondratiev cycle. Summer would be the second phase, autumn the third and winter the fourth and last, when interest rates are nearly zero. What is to say, when the secular bull market in bonds ends.

Kondratiev winter countries

This theory does not apply to all countries or at the same time. Evidently, we are referring to the most prominent economy and society of this Era: The United States of America.

The secular bull market in bonds ended already in Greece. But, why is this kondratiev present cycle lasting so much?

The first Kondratiev winter lasted 25, the second 23, the third 21, and this is lasting – considering it started with the nasdaq collapse in 2000 – 14 years. So, by this measure we might conclude that there is still a long winter ahead.

Nonetheless, if we consider that this present cycle has had longer autumns, spring and summer than the previous ones, perhaps the winter should be longer as well. Maybe, a 30 years winter?

What should we expect from the Kondratiev Cycle?

Springs are characterized by fear and pessimism that come from the previous winter. People are not ready for too much optimism yet. Some sort of conservatism reigns. However, due to the fact that most debt was liquidated in the winter, the society has good roots and almost no debt.

In this phase there is a recovery in inflation, credit and interest rates.

The best investments are the stock market and real state.

Kondratiev summer

Summer is the time when there is a growing confidence after a previous positive season (spring), and the worst of the last bear market is almost forgotten. Inflation raises a lot and there is a bear market in bond prices. The best investments are commodities, real estate and metals, and of course, all stocks related to them.

Last summer, American stocks had a “lost decade”. Summer is also the time when there is a significant increase in credit to business, despite the higher rates.

Kondratiev Autumn

Autumn is the part of the cycle where the real fun is.

Confidence is at its highest. Debt starts at a moderate level and interest rates start decreasing with the consequent bull market in bond prices.

There is a huge boom in credit and consumption.

Debt levels rise to stratospheric heights, as well as the stock markets. The latter, bonds and real state are the best investments of this part of the cycle. Gold and commodities perform very badly.

Kondratiev winter deflation

Last we have the famous winter, in which after a euphoric previous time, all bills have to be paid. It is not by chance that in autumn there is an increase in optimistic and prodigal behaviors.

The excess of optimism and trust leads to an increase in redistribution programs and in the size of the State. The masses will not understand that that level cannot be sustained.

There will be a huge resistance to dismantle the state. At the same time, the stock and commodities markets will collapse.

Unemployment will reach very high rates and the business activity will be at its lowest. Everybody will look for a government job that provides security and good pay. Fear and pessimism are the norm.

Kondratiev winter gold

The best investments are bonds and gold.

Where are we now? Well, Kondratiev theories seem to apply here.

The bond market is the best of all investments for the last 15 years, and in strong demand (The US bond market, not the Greek). The bond bull market lasts for 35 years already.

Cash seems not a bad investment, although it has not been the best either.

Gold is still much higher than when the winter was meant to start: in 2000 it quoted $250 when “the bottom picker of the century”, Gordon Brown sold most of England´s gold.

The stock markets are in some cases above their 2000 levels (SP500 and Dow Jones), and in other cases below them (Nasdaq, most European stock markets).

Kondratiev Dow/gold ratio

There is an interesting aspect about the price of gold related to that of stocks that has not been achieved. I am talking about Dow/gold ratio (2), which says that in every one of the last depressions (winters), that ratio reached values below two. However, in this current winter we only reached close to seven in 2008 (it is around 15 today).

That little detail gives me a hint that the current winter has not yet finished.

If we consider World debt levels, and in particular that of the United States, we could conclude that winter is not yet over. The debts have not been liquidated, and no winter has finished with this level of debt.

I think that what we have ahead is the complete collapse of most of advanced economies.

The value of the ratio Dow/Gold could probably be lower than the last autumn.

If we look at the long-term chart of the Dow/Gold ratio we may perceive that there was a significant destabilization in the seventies with the advent of the Fiat system. Interest rates rose more than ever, to disproportionate heights. Let’s say that the pendulum was broken, and future oscillations should be expected to be more violent.

I would not rule out rates close to zero in the TNX, and a Dow/Gold ratio close to it as well.

Hugh Hendry said once, that he expects a deflationary collapse before governments embark in a hyperinflationary race to the bottom. In that case gold would be the best asset, although it could be easily be confiscated.

Kondratiev winter collapse

As for Kondratiev and the study of cycles, it is not something new under the sun since old civilizations like the Hindus or the Greeks talked about the cyclical behavior of civilizations and nature. As for the Hindus, we would be at the Kaly Yuga age, which would be the equivalent to Kondratiev´s winter, but in a bigger version.

We also have interesting studies of cycles by Oswald Spengler with his monumental work “The decline of the West”. And, the works of Homer Sylla: “The history of interest rates”, where they explain to us how each civilization had a long phase of decreasing interest rates before embarking on the last stages of rising ones when societies collapsed completely.

Could we be at the gates of those high interest rates?

A last and personal thought about Kondratiev cycles. Te fact that he started analyzing the data from the rise of the Capitalistic Era in 1790 means that there is a little problem: what happens before 1790?

We cannot really accept that these cycles will have to repeat forever because it is a fact that they were not like that before 1790. At least not in a similar way that the ones of the industrial age.

So, could it be that these series have an end as well as a beginning?

Could that end be the rise of full blown socialism as Marx and, in a way, Schumpeter predicted?

If that is the case, we could be sure that we would have a “perpetual” winter. If that happens we should forget about things like Dow/gold ratio.


  1. In this image of the web safehaven you can see the correspondent waves.
  2. You can find a chart of this ratio in Macrotrends.


Thanks for reading and sharing.