Have central bankers killed the Juglar and Kondratiev cycles?

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The last 30 years have featured major innovations in information technologies and communication, which have created a tremendous amount of value. Even so, the global economy has experienced three recessions with curious regularity. In 2007-2008 we went through the Great Financial Crisis (GFC). Prior to that was the bursting of the tech bubble in 1999-2000 and a crisis in financial assets during 1990-1991 (junk bonds, the first gulf war, then ‘Black Wednesday’ on 16/09/92, and sterling’s exit from the European Exchange Rate Mechanism (ERM).

The gap between each of these crises/recessions is close to the 9-to-11-year “business cycle” identified by the French economist Clement Juglar (1819-1905) in his work ‘Des Crises commerciales et leur retour périodique en France, en Angleterre et aux États-Unis’ (Trade crises and their periodic resurgence in France, England, and the United States) (1862).

Based on his analysis, the economy alternates regularly among three phases: expansion, downturn and liquidation. Economic expansion creates trade surpluses that increase the money supply and then generate inflation. This results in lost competitiveness and then gradually to a shrinking money supply, which leads to an economic downturn, then a recession.

On another timescale, in The Long Waves in Economic Life in 1926 the Russian economist Nikolai Kondratiev (1892-1938) drew attention to a long cycle of 40-60 years that is closely correlated to technical advances such as the steam engine, electricity and aviation. It moves in two phases:

1/ an upward phase, in which innovation spreads, demand expands and prices rise; followed by

2/ a downward phase, in which the cycle reverses itself as demand contracts, while competition between companies becomes ever keener.

Based on these two analyses, we wonder, in an economy marked by central bank interventionism, whether equities, commodities and debt still follow cycles

To try to answer this question, we looked at indices with sufficiently long price track-records to determine whether cycles exist. We chose the Dow Jones Industrial Average (Ticker Bloomberg: INDU Index in USD since 1905), the Commodity Research Bureau Spot All Commodities (Ticker: CRB Index in USD since 1900) and the US (public and private) debt/GDP ratio (Source: FED and IMF since 1966).

At first glance, the long-term trend in the Dow Jones Industrial Average since 1950 (see exhibit 1 below) does not appear to adhere to a cycle, but rather to a gradual upward trend with breaks from 1965 to 1975 and then from 2000 to 2014.

Exhibit 1: The change in value of the Dow Jones Industrial Average (DJIA) has exhibited a gradual upward trend since 1950 with periods of sideways trading between 1965  – 1975 and from 2000 – 2004 (this graph shows the change in price of the DJIA for the period from 1910 to September 2016)

indice-dow-jonesSource: Bloomberg as of 13/09/2016

However, an analysis of rolling annual returns shows a succession of expansions and slowdowns within a 31-year cycle (Exhibit 2 below). This would imply that, after bottoming out in 2009, we are now in an upward phase until 2025.

However, compared to previous trends, the decline that began in 2000 lasted for the relatively short period of nine years. Accordingly, the upward cycle that began in 2009 could be volatile and marked by setbacks, as occurred in the 1930s.

Exhibit 2: An analysis of the rolling annual returns of the DJIA shows a succession of expansions and slowdowns within a 31-year cycle suggesting that, after bottoming out in 2009, the DJIA is in an upward phase until 2025



  • Moving Average (MA)
  •  The Dow Jones Industrial Average (INDU)
  • Year-on-Year (YOY)

Source: Bloomberg as of 13/09/2016

Annual rolling returns of commodities and of the CRB index in particular, show a clear cyclical trend, with 14 years between peaks and troughs

This cycle has spanned two world wars, the various oil shocks of the 1970s and then 2000, the precious metals rallies from 1980 and 2010, and the food crisis of 2007-2008. While Brent experienced two years of 40%-plus declines in in 2014 and 2015 and hit a historical low of USD 30.22 in early 2016, the commodities cycle will continue to decline until 2025. Obviously, this cycle is based on an average commodities price and we could have dispersion in the form of an increase in precious metals, while oil continues to fall. This 28-year cycle continues to diverge from the durations predicted by Juglar and Kondratiev.

Exhibit 3: The annual rolling returns of commodities and, in particular of the CRB index, exhibit a 28-year cycle diverging from the durations predicted by Juglar and Kondratiev



  • The Commodity Research Bureau Spot All Commodities (CRB)

Source: Bloomberg as of 13/09/2016

Global debt has expanded by USD 57 trillion since 2007 and none of the main developed countries has reduced its debt/GDP ratio since 2007*. The United States, whose growth is among the strongest among developed countries, is also one of the most heavily indebted countries. The rolling annual change in the US (public and private) debt/GDP since 1966 (chart below) is tracking a cyclical, 18-year trend. Until 1991, debt/GDP ratios were driven up by economic stimuluses and, no doubt, baby-boomers, who bought their first car, then their first and second home. Since 2010, we have been in a downward phase, and the ratio is rising less and less as we reach historical levels. A return of inflation in the coming years would help reduce the debt burden.

Exhibit 4: The rolling annual change in the US (public and private) debt/GDP since 1966 is tracking a cyclical, 18-year trend

us-all-debtSource: as of 13/09/2016

In conclusion, on the basis of the analysis above, we verified the cyclical trends of these assets, in contrast with some analysts’ approaches that are too often “linear”, i.e., consisting in linearly extrapolating past findings to obtain a future estimate. However, we did not locate the Juglar and Kondratiev cycles precisely.

Commodities and debt cycles are currently in a downward phase while equities have begun an upward phase likely to show signs of instability over time. The aforementioned cycles are not perfect, as there is a margin for error particularly in the arbitrary choice of the cycle’s staring point or duration.

Even, so the discoveries of Clement Juglar and Nikolai Kondratiev have lived on, and the economy continues to move cyclically in the 21st century.

* “Debt and (not much) deleveraging”; Mc Kinsey Global Institute.

This article was written by Fabien Benchetrit on 10 September 2016 in Paris

Fabien Benchetrit

Senior Portfolio Manager, Model-driven Cross Asset, THEAM

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