When I began studying monetary history and wealth cycles, I was
electrified by the realization that the same patterns have repeated over and
over again, from ancient Greece and Rome to our own modern global society.
What really thrilled me was the realization that understanding those
cycles gave me a roadmap for where today’s markets and the economy were
headed. For example, I could see that every time in history that a government
intervened in free markets, the markets would eventually undergo a correction.
I could see that every time a government began devaluing its currency by
creating more and more of it, certain events, like inflation or
hyperinflation, would follow, every time.
My understanding of cycles has allowed to me to build a successful
business and secure my family’s wealth. My strategy is to invest in
accordance with the natural economic cycles that have occurred repeatedly
throughout history. Time and again, I have made successful investments
not because I’m some financial wizard, but because my understanding of those
cycles gave me just a little bit of an informational edge over the next guy.
The purpose of this introduction to the Wealth Cycle Principle is to give
you the opportunity to gain that edge as well.
What is a Cycle?
The word “cycle” comes from the Greek word kyklos, meaning cycle
or circle. One common definition of cycle is “a periodically repeated
sequence of events.”
The idea of a cycle is symbolized by a circle, which, because there is no
beginning or end, represents recurrence. The symbolic circle is often divided
into segments—often two, such as the Chinese yin and yang or day/night, but
more often four segments, like the seasons.
“The reward of the historian is to locate patterns that recur over time
and to discover the natural rhythm of social experience.”
-William Strauss and Neil Howe, The Fourth Turning
A recognition and understanding of cycles is one way human beings are able
to recognize patterns in data. As early humans learned that events in nature
recur over and over again with regularity, they developed the ability to plan
for the future, which ultimately led to advanced civilizations.
Human understanding of cycles goes back thousands of years, beginning with
the recognition of the human life cycle. Every human who has ever lived was
subject to the human life cycle of birth, childhood, adulthood, aging and
death.
Early humans also recognized the life cycles of animals and plants and the
regular changing of the seasons. They learned to use their understanding of
cycles to plan their hunts, to know when native plants would be ripe for
harvest and eventually to develop agriculture. By developing an understanding
of the past, humans learned to manage the future better.
Cycles, as our ancestors recognized, are relevant in all aspects of life,
be it the lifecycle of a cicada or the birth and death of a planet. In fact,
even our human behavior and personalities are subject to cycles. Changes in
the seasons raise or dampen our spirits; many people respond with depression
to dark, dreary winter and grow cheery with the advent of warm spring
sunshine and bright summer days. Many cycles trigger polarities of moods—from
peace to war, or, with market cycles, from “exuberance” to “depression.”
Markets, which are driven by human emotions such as greed and fear and
behaviors also fluctuate in natural cycles. Economic cycles, like other
natural cycles, exhibit the polarity of booms and busts.
Types of Economic Cycles
The first economist to identify economic cycles was 19th century French economist
Clement Juglar, best known for identifying the 7-11 year fixed investment
cycle which bears his name. Juglar’s template for economic cycles became a
model for other economists to base their theories.
The basic format of an economic cycle is expansion,
leading to crisis, followed by recession,
and finally recovery, which leads back to expansion. The
timing of basic economic cycles can be predicted with some regularity.
Early 20th century Russian statistician Nikolai Kondratieff theorized that
Western capitalist economies are subject to long-term cycles of booms and
busts that recur regularly in 50- to 60-year cycles, known today as
Kontratieff waves. He claimed that these supercyles had been running since
the beginning of time.
Another natural cycle is the currency cycle. The currency cycle occurs
less regularly and less frequently, but always follows the same pattern.
Societies start with quality money that holds its value (i.e. gold and
silver), and then move to quantity but lower-value currency and then back
again. These cycles ebb and flow throughout history, as naturally as the
tides.
The currency cycle has been recurring for the past 2,400 years. Every
time, governments in order to give themselves the power of deficit spending,
begin to create more and more currency. As they create more currency, each
unit of currency has less value. Eventually the people realize their currency
doesn’t buy as much as it used to and is losing value. Every time for the
past 2,400 years, the free market prevails. Gold and silver automatically
revalue themselves. It’s a natural cycle, and it always ends the same way,
with the value of gold and silver rising to account for the excess currency
the government has created.
The stock cycle is a shorter cycle. For a time, stocks and real estate
outperform gold, silver, and commodities. Then the cycle reverses, and gold,
silver and commodities outperform stocks and real estate.
The Current Wealth Cycle
The Wealth Cycle Principle is a way for an observant investor to use market
cycles to forecast market direction and choose investments based on those
forecasts.
How does The Wealth Cycle Principle work? By recognizing what market cycle
is currently in progress, identifying investments that are “in the cycle,”
and investing heavily in them before they reach peak price. When those
investments become overvalued, it’s time to sell. Adherents of the Wealth
Cycle Principle spend lots of time learning and interpreting what their next
“in the cycle” investment will be. They keep a sharp eye on market
fundamentals and price fluctuations. Even though they are sticking to their
strategy of investing in the identified cycle, they must be constantly alert
to what’s happening in other sectors, antennae tuned to changing conditions
and eyes peeled for the next big thing.
Today, we’re in a precious metals cycle. But thanks to a confluence of
events and the cumulative results of decades-old fiscal policies and market
manipulations, our current economic condition is exponentially more fraught
with peril and opportunity than the mere progression of economic cycles would
ordinarily entail.
Today, a fiat-currency cycle of unprecedented size and duration is coming
to a close. That’s because for the first time in history, every single
currency in existence in the world is a fiat currency, and because
globalization has linked the economies of the world in interdependent
relationships to an extent never before possible.
Every fiat currency ever invented has failed—a 100% failure rate. When the
word’s fiat currencies begin falling like dominos, each taking the next one
down with it, the world’s people will have nowhere to turn but to history’s
recurring choice for real money, gold.
As the fiat currency bubble bursts, a commodity cycle is just beginning.
The recent pain and losses associated with stocks, bonds and real estate have
created a generation once burned and fearing the fire. Tangible commodities
will become the investment of choice, and for many solid and historically
supported reasons, gold and silver will be among the most sought-after
commodities.
One reason gold prices must rise is that peak gold—the point at which
the maximum amount of gold is available worldwide—has been reached, probably
some 10 or so years ago, according to a 2009 statement by Aaron Regent,
president and CEO of the world’s largest gold mining and production company,
Barrick Gold. Peak gold means the lowest-hanging fruit of easily extracted,
high-grade ore already has been harvested, and the amount of gold mined each
year will continue decreasing into the future. Gold prices will
necessarily have to go up in order to make mining operations pencil out.
Like gold, silver also has been used as money throughout human history.
But silver also is an important component in many industrial applications,
putting even more demand pressures on its price. And as with gold, we have
reached peak silver. Today, very little silver is being mined.
Today there is probably six to seven times more gold available for
investors to buy than silver. Today there is approximately 450 million ounces
of silver available in stockpiles worldwide—about one ounce for every 14
people on earth. Silver prices are very low right now relative to gold, but
those bargain-basement prices can’t hold much longer—despite government
policies and financial sector machinations to manipulate the markets.
In fact, no one knows the true free market prices of gold and silver,
because they have been artificially manipulated for so long. When the free
markets do finally determine gold and silver’s true value (which they always
have throughout time and inevitably will again), the wealth transfer will be
mind-boggling.
The Next Great Wealth Cycle
I want to make it clear that I don’t advocate investing in gold and silver
exclusively until the end of time. Ten or 20 years down the road, I might
advise you to invest in something entirely different, because by then we may
be in a different wealth cycle. But I will tell you that there may never be
another opportunity like this one in my lifetime or yours to profit from the
greatest transfer of wealth the world has ever known.
Here’s why:
● Today’s currency bubble is inflated to unprecedented heights, and
because every currency in the world is fiat currency, the only safe haven
money investors can turn to is gold and silver.
● The end of the currency cycle corresponds to the winding down of a
stock cycle, magnified as millions of retiring baby boomers are mandated to
withdraw 401k funds from the market.
● As the currency and stock bubbles implode, a commodity
cycle—favoring the two commodities that can be used as money when currency
has become valueless—is just beginning.
● We’re living in a world that is interconnected and interdependent
in ways unimagined a couple of decades ago. With communications occurring at
the speed of light, with former developing nations now populated with eager
investors, with global trade imbalances and unstable currencies balancing
governments and markets on knife’s edge… when this correction starts, baby,
it will be the mother of them all.
It all sounds pretty scary, I know. But that’s why you’re reading this
primer, and that’s why you’re taking time to learn the lessons of the past.
Knowing what has happened in the past is essential to becoming financially
educated today. Knowing what missteps have led others to failure or ruin
allows us to avoid those same missteps today. Recognizing patterns that have
repeated over and over again in the past allows us to predict what will
happen when we see those same patterns repeating today. A solid understanding
of history and its relevance to the present allows us to face the future with
confidence.
Now you have the tools and the knowledge; use them wisely, and you can
ensure future security and prosperity for you and yours.
-Michael Maloney
