QUESTION: I was listening to a podcast on Bloomberg interviewing Peter Borsch who I remember you know for the two of you were together on a cycle research board and he worked for Paul Tudor Jones who handed me a copy of the Greatest Bull Market you wrote back in 1986. That was my introduction to you. On this show they were talking about cycles and the two people mentioned were you and Dewey. If you could boil down the reason for cycles, what would you say? What made you explore cycles to begin with?
ANSWER: Western culture is prejudiced for we think everything is a straight line. My introduction to cycles was actually in high school. The teacher brought in a movie we were to watch in class the Toast of New York. This was about the Jim Fisk manipulation of gold in 1869. In the movie they said gold reached $162. I thought that was just Hollywood. It bothered me so I was compelled to go to the library and look it up in the newspapers on film back then. Low and behold, there it was the quote of $162. I knew gold was $35. Suddenly the world was not a straight line (I highly recommend watching this movie).
This was the movie that changed my life. I did not read about Kondratieff or Dewey or anyone else. They were never mentioned in school. So I came at this totally fresh and unbiased by anyone else. I began writing about cycles in the 1970s. As I did, after discovering the Economic Confidence Model, many people responded overwhelmingly positive. A professor from the military school, the Citadel, called me and said I was a modern-day Hegel. He asked me if they could teach the ECM at the Citadel. I said of course. Hegel had influenced Marx for Hegel saw two opposing forces, but argued that a third conclusion would emerge from a thesis and antithesis producing a synthesis.
While I agreed with Hegel in the existence of two opposing forces, I disagreed that a synthesis of the two will always emerge. My study of history revealed that the common denominator was human nature and that never changes over the centuries so there is no synthesis of a Utopian state as Marx believed based upon Hegel – only one side dominates the other for brief periods of time until the pendulum swings back to the opposing side. History repeats, indeed, but the actors change. If you simply study the cause and effect, you will see that this pattern repeats regardless of the century.
What I studied about cycles and the various people who were also attracted to the subject matter came after I had explored on my own. I could see we came to similar conclusions, but from different perspectives, which was good. I have put together a comprehensive review of everyone who has contributed to the field and from different perspectives.
In physics class, the professor would say nothing was random. Then you went to economics and the professor would say everything is random so don’t bother to try to figure out the business cycle because it’s just a random walk through the park of a drunk.
Cycles exist because there MUST always be two opposing forces in everything. We are awake by day sleep by night (most of us anyhow). Hold your hand straight up in the air. No problem for most. Now keep it there. You will suddenly see that you run out of energy. Your arm will feel so heavy you can no longer keep it in the air.
This is why markets cannot go up forever nor down forever. Markets will always reach that maximum point of energy being expended in each direction. This is true even in things like fashion. Women’s skirts go up and down and men’s ties and lapels get wide and then narrow. Human nature is fickle.
Anyone who only forecasts a given market will always rise like gold or the stock market must go down, do not understand cycles and how these two opposing forces propel everything in the universe. How gravity keeps the planets revolving, how our solar system is revolving within the milky way, and how it takes 25,800 years to return to the same point in time. Just look at the structure of an atom. You see the same structure in the universe. There is a fundamental design that everything in the universe complies with or else it would be random chaos. This is the blueprint to everything. Even you heart beats to a cycle. How do they tell you are dead? There is no more cyclical activity in your brain.
There must always be two opposing forces; good & evil, night & day, male & female, left & right, plus and minus, sun & moon … etc, etc. There is no absolute right and wrong that can be maintained. This is why you cannot write a law to change human nature. You can outlaw prostitution and drugs, but you cannot eradicate it. All you do is subsidize such activity making it tax free because it goes underground. You will never change human nature this is also why career politicians can never be honest – impossible.
As long as Western culture continues to see the world only in a linear fashion, then we will never understand the future. Politics relies upon linear thinking. They promise vote for them and they will change the future in some manner typically engaging in class warfare. Politicians cannot solve any problem, for they are the source of all problems. The West thinks linearly so we will NEVER solve a problem, merely repeat it. We do not teach how to think, we teach what to think. This is why A students work for C students and B students work for government.
Richard E. Nesbett wrote a good book entitled “The Geography of Thought, How Asians and Westerners Think Differently … and why.” He attributed his work to a Chinese student who said: “You know, the difference between you and me is that I think the world is a Circle, and you think it’s a line.” He goes on to quote him:
“The Chinese believe in constant change, but with things always moving back to some prior state. They pay attention to wide range of events; they search for relationships between things; and they think you can’t understand the part without understanding the whole. Westerners live in a simpler, more deterministic world; they focus on salient objects or people instead of the larger picture; and they think they can control events because they know the rules that govern the behavior of objects.”
What I am trying to do with this blog is open your mind to see the entire world around you. This is how to be a successful hedge fund manager. Stop being a horse with blinders. There is a big world around you. You have to see the world in its entirety or else you will fail.
This is what it takes (1) to be a real hedge fund manager, and (2) a successful trader.