Why I Study Cycles

Dr. Richard Smith, FSC Chairman

A Note from the Chairman: Why I Study Cycles

Dear FSC Friends,

The past two weeks I did a deep dive into Dalio’s debt cycles and Michael Howell’s global liquidity flow cycles on Trading Market Cycles (live on Cycles TV on Tuesdays at noon ET). It was a sobering and informative exercise – one that also reminded me of one of the highest purposes of the FSC.

First, the sobering facts and cycles. The debt crisis is here, it is serious, and there is a limited liquidity window in which we can do something about it.

Long-term cycles in 10-year Treasury yields tell us that there is likely to be upward pressure on yields for decades to come. That means higher servicing costs on an already barely sustainable debt load. Howell’s 65-month cycle in global liquidity flows together with the 18.6-year real estate cycle tell us that there is a limited window over the next 12 to 24 months to get our financial house in order.

It's all a sobering reminder of why our founder, Edward R. Dewey, started to study cycles in the first place: to understand what caused the 1929 stock market crash and ensuing depression and to uncover what was missing from traditional early-20th-century economics.

I see a lot of vindication of Dewey’s prescience in our world today. In many ways Dewey was a pioneer of what we call behavioral economics today. He was willing to look beyond the “command and control” approach to economics and think more in terms of probabilities and statistics. This isn’t an easy thing to do today, let alone 80 years ago when Dewey started his work.

Most importantly, Dewey’s quest to understand the causes of the Great Depression was driven by his burning desire to ensure that it never happened again. How did he hope that could be accomplished? Through an awareness of cycles.

The data and technology available today would be unfathomable to Dewey. Yet, we know exactly what he would do with it. He’d be studying it, collaborating with others on it, and sharing the work as widely as possible.

So shall we.

Time rhymes,

Dr. Richard Smith
Chairman of the Board and Executive Director