Any Kondratieff and business cycle investors?

[jacob]

I see a lot of dividend growth/index buy and holders and permanent portfolio rebalancers here.
Are there anyone at all (other than me) who is timing economic cycles, e.g. business/inventory in the short (<5 year) run, or Kondratieff waves for the longer run?
Or otherwise rely more on macroeconomic data and top down analysis than bottom up analysis or mechanical trading methods...

[OurLifeInc.]

I meant to ask you a follow-up question from one of your twitter answers. How do you get income with timing the market? Or when you have good income generators, do you keep them and time the market with new money or money you want to move from something that has less opportunity for return?

[jacob]

I just hold dividend stocks in different sectors, or move into bonds when stocks are generally overvalued. For example, if (when!) the market falls further, I will sell my bonds, telecom, and utilities, which will not have fallen as much, and buy energy/materials instead.

[Surio]

I am trying to get into the macro type of investment strategy.
I have read "If It's Raining in Brazil, Buy Starbucks" sometime in 2006 and have been interested in the ideas there since. However, I haven't found the dedicated time/effort to put in, in order to make this approach work full time.
Understanding broader market sentiment does help though. I was successful with tea and sugar with this kind of inventory/business cycle approach — so I can say, it works.
But it takes quite a bit of effort. Once I achieve FI, I am sure to adopt this approach, as it will free me up with more time to live the life of John Robie, "the cat" (tending to a farm, lest people get ideas). LOL!
With this kind of investment approach, holistically, one would be a capitalist in the truest sense of the word, I think.

[OurLifeInc.]

Jacob, so you dont keep any core holdings for income or are you willing to move anything based on the macro environment?
Any good resources to read about your style (your inv book!! ). I feel reading about other styles makes me a better investor....more tools for the toolbox...

[Chad]

I time the market. I mostly use economic cycles and historical trends to get a good broad theme of what is happening (credit crashes like this last longer than normal recessions), but I also use inventory, real estate prices, consumer sentiment, my own observations (busy stores, subjects people talk about, etc.), advice from the very few investors I trust, etc.

[AnotherAustinite]

Jacob, what kind of bonds do you own? I wonder if you own US Treasuries and how you consider them "investments" when they pay such paltry yields. I've been thinking about buying some bonds here but they seem way overbought, and I would probably do short-term corporates and TIPS.

[jennypenny]

I prefer Kondratiev's analysis to Browne's. Browne is too US-centric.
Our current allocation is 60% bogle-type investments, 20% cash, and 20% spec/timing. I think timing the cycles can be profitable if you don't get lazy. It's a lot of work, and you have to set some rules and stick to them. It's harder with so much government intervention lately (GM, AIG, banks) but it can be done. It's just something else to factor in (although I don't have a good guess as to what will happen when the US dumps GM and AIG--I'm hoping for a forced buyback but who knows). There are sectors I stay away from because I just don't have a good feel for them (utilities is one).
I don't have anything in the spec fund that I would hold more than 5 years.

[Chad]

"...you have to set some rules and stick to them."
Interesting, as I actually think the exact opposite. You have to set some rules, but know when to change them.

[jennypenny]

@Chad--Good point. Maybe "boundaries" would have been a better word choice. Although I do have a firm rule about how much I'll invest in something on a given day. I'm willing to give up some upside to avoid too much downside.

[Surio]

@jennypenny,

I am inclined to agree with you on both of these:
1. Browne (PP) tends to be more US-centric (which is why I don't follow it, despite its cleaner and less-messy nature).
2. It is a lot of work to get cycle investing into implementation.
@Chad,

If you get a chance, look for Navarro's book that I linked earlier, in your library. As many reviewers put it, the writing style is quite offputting because of the 'fictitious people' in the case studies that make fortunes from following his rules. But the rules themselves are quite a lot, are very involved but very logical too. So, my understanding is that there are a lot of rules which you spend time in laying out because, it returns success only if you stick to those rules. Otherwise it wouldn't be called "cyclical" investing, would it?
Please note that I have not mentioned anything about the "timeframes" of the appearance of these various cycles here. This is probably where the 'flexibility' part that you talk of comes in, I suppose.
Meaning, just because the last bear cycle lasted 2 years doesn't mean you expect it to last two years in this one too, right?

[jacob]

I don't see Browne as US-centric. I see him are Kondratieff Fall/Winter centric because commodities are ignored. If commodities are going to be a rising factor during the next 30-40 years and bonds are going to be dropping with yields rising, then ...
Gold is going to be declining (after it has a spectacular run up to 2500 or worse/better)

Cash is going to decline, then rise.

Stocks will rise, then fall.

Bonds are going to be declining.
This will be quite different from the past 40 years from a PP perspective.
From a stock market perspective, stocks will do poorly for the next 10 years until the system is delevered. Then stocks will be rising but this will in the face of rising interest rates until 2050+. Part of the stock market bubble since 1983 has been ever declining interest rates. They're negative today and even going lower.

[Chad]

@Surio

"...there are a lot of rules which you spend time in laying out because, it returns success only if you stick to those rules."
I'm not against rules. I'm just against treating them as holy scripture and never breaking them.
"Meaning, just because the last bear cycle lasted 2 years doesn't mean you expect it to last two years in this one too, right?"
No, but this type of thinking can be helpful if taken to the proper depth. For instance, the current recession was caused by a credit bubble. This type of recession lasts far longer than most historical recessions which are caused by asset bubbles or lack of demand (due to inflation). So, the fact that this recession is an outlier in length and type helps influence a macro strategy.

[Surio]

@Jacob,
The reason I say PP is US-centric is for a few reasons, one of which
http://www.moneysense.ca/2011/09/06/is- ... inflation/
That was the quickest Net search I came up with, but the situation is the same in India. We are having one of the Worst inflation runs (I will tackle that in an upcoming blog post that I referred to you earlier), but the price of Gold is not ever near to a 10-foot barge pole... Basically, I am not able to balance my portfolio per the PP under these circumstances. (This is not a "these grapes are sour" remark. I did look into it for a while. But no joy.)
Like I said earlier, it seems like an elegant solution, but I feel that it was unintentionally designed around the US system
I haven't read your comments in full detail... I need fresh eyes for that. In the meanwhile if you have some spare time, you could expand the telegram (your reply above, that is) into something bigger, pretty please?

[Surio]

@Chad,

Looks like it is a case of "tomay-to" vs. "tomA-to" here .
In Navarro's book, he explains that there are series of rules for every cyclical behaviour and once you determine the cycle, apply the "appropriate rule". So, you see there is no breaking of rules, but applying a set of rules, whatever being appropriate for the moment. Hence jenny/myself complain about the time needed to be invested into this.
LOL! I was trying to frame a rhetorical question, but unfittingly ended up describing the current, ongoing market cycle Ha Ha... Thanks for replying though.

[jennypenny]

@jacob said "stocks will do poorly for the next 10 years until the system is delevered. Then stocks will be rising but this will in the face of rising interest rates until 2050+"
Why do you think it will take 10 years? I can't say I disagree, but I'm wondering how you came up with that number. And if you make money off of money (instead of working) aren't rising interest rates a good thing? The gains on interest-related investments will offset the tempered return on stocks.
I had to go in my basement to dig out the book I had with Kondratiev in it. Rereading it was eye opening. The chart of US 30yr bonds in the safe haven article was also intriging.
re: commodities--Using this theory I don't understand what happens if global demand for commodities overtakes supply in a permanent way. (human overproduction instead of business) Is it just another wave, but you have to wait for the system to be delevered of humans?

[jacob]

Rising interest rates only benefit cash. But hey, maybe the days of the money market funds will return. On short maturities will benefit. Longer bonds will be declining.
10 years because a typical season lasts 15 years, which would normally put the end around 2015. However, this bubble was fueled by real estate which is much slower to deflate than a stock bubble. Also, the banking system has been propped up rather than being allowed to fail. It's partially a combination of how fast human institutions can work through their rigid structures and conflicting interests and how long it takes to "break down" superfluous buildings.
I'm beginning to see peak oil as just another wave (like peak wood). People will find other interests than massproduced junk which is simply an economy built on wasting cheap commodities. When commodities become expensive, the economy will change to focus on something else. My guess is rare metals (for the chip industry). As usual, most people won't really notice or blame more immediate matters.

[jennypenny]

I just started reading "The Great Crash Ahead" by Harry Dent. He bases some of his theories on long waves. So far, it's interesting. He's predicting 10-15 years before things improve.

[gawping]

what do people make of rothbard's critique of the kondratieff cycle?
www.lewrockwell.com/rothbard/rothbard44.html

[gawping]

doesn't look like gary north likes it either (if that's relevant)...
http://www.lewrockwell.com/north/north725.html