Cycles and decline


At the moment President Obama is riding high on the back of the passing of his healthcare plans, but before too long he, and the US economy, will be on a downswing again. That's according to Dominic Frisby of Money Morning, who believes you can see four-year up and down cycles in stock markets in America, and indeed all over the world.

He's got some charts from the Dow and the Nikkei to back him up, and yes, you do see cycles, some more pronounced than others, but definite four-year cycles nonetheless. So the question is, why do they exist?

It's simple, and it's back to government as usual. With a four-year election cycle, there is an upswing of optimism that comes in with any new President. Then the administration starts doing all the 'bad' things it needs to do to balance its books, and optimism wanes. So we head on to a four-year low. Then the administration's focus turns to getting re-elected, so it starts spending money like water and the markets turn up. Pretty soon that turns out to be unaffordable and...well, the rest you know.

It's plausible; and on this theory, the second half of 2010 will be a lot uglier than the first. We've already had the high point of this particular cycle. Buckle up for the descent.