No. 004 The Cycles of War

Supercycle Investor w/ Larry Edelson | Real wealth building | Investing Tips | Stock Advice

WAR – it s defined nations and civilizations since the dawn of humankind. And especially the financial rise and collapse of economies.

That doesn’t mean it takes an all-out war to tear down societies. In this episode we discuss the various types of war – currency, trade and cyber wars – and how investors can prepare for these inevitable cycles.

Transcript:

Mike Burnick: Hello, everyone, and welcome back to the Supercycle Investor Podcast. I’m Mike Burnick and joining me again of course is Larry Edelson. Hi, Larry. How are you?

Larry Edelson: All right, Mike. How are you?

Mike: I’m doing great and in this episode we have a unique cycle that we’re going to study. It’s not a macro economic cycle this time. It’s the cycles of war which also has very interesting impacts on the global economy. After all, war has really defined nations and civilizations really since the dawn of mankind, and especially is tied into the financial rise and collapse of countries and economies. Think about the great British Empire spanning the globe all built on sea power, but it was really about economic control. Even before that it was the Spanish. Now of course a lot of investors, a lot of people are concerned that the great United States empire might be declining and then the rise of China.

So we’re going to delve into this a little bit this week and get Larry’s take on how important the cycles of war are in impacting global economic growth, and even threatening your very wealth because it can really change the pattern of what we see from one country to the next in terms of leadership or dominance. So, Larry, when did you first get involved in studying the cycles of war separate and apart from the macroeconomic cycles which we’ve already talked about?

Larry: I actually started looking into the phenomenon of war when I was in college at Columbia University. I studied warring between various primitive tribes and economies in Northwest American Indians and an Afghan tribe. So I was fascinated how outbreaks of war at a very nuclear level of a primitive type of economy often tied back into seasonal influences and cycles and droughts and weather patterns. That was my early start, and then when I went to Wall Street, I carried that interest with me. I continued to pursue knowledge of the history of the rise and fall of economies and continued to look at war as an integral part of that, because as you just said, war unfortunately has been with us since the dawn of civilization. And it is also intimately tied with economic conditions.

Mike: Right and there’s a big misconception out there I think. A lot of people believe that the cycles of war, or warfare in general, is related to religious purposes. You think of the Crusades for example.

Larry: Right.

Mike: But you found that that’s not the case.

Larry: That is not the case and that was even shocking to me and I did that study quite some time ago. I worked with the Norwegian Academy of Sciences that collects a lot of data. They’re also the outfit that gives out the Nobel Prize each year and they have a very rich databank on wars. In fact they have a databank of 14,596 wars that they’ve documented going as far back in time as humanly possible.

Mike: Uh-huh.

War Cycle Analysis for Investing

Larry: And I went through that documentation and only about 5% of those nearly 15,000 wars throughout history were actually for religious purposes. The vast majority of them were due to other things: Rise and fall of nations, class warfare, natural resource competition, so on and so forth. So it’s quite interesting.

Mike: So a lot of it ties in right back into economics and the macroeconomic cycles you’ve identified, more so than it does religious conflict.

Larry: So it’s really very interesting and I did that work as a cultural anthropologist, and when I went on to further studies on the cycles of war, I also collected data from the Foundation for the Study of Cycles which was founded by President Hoover in the aftermath of the Great Depression. He wanted to know how and why the depression happened. That institute is still around today and I collected their historical database which was put together by a fellow named Raymond Wheeler. And in addition to the material from the Norwegian Academy of Sciences, I was able to run with some computer models that I developed using what s called spectral analysis, which basically runs through computer large amounts of data and it looks for any recurring patterns. What I was able to find is that there’s really a 53-1/2 year major war cycle. I call it the granddaddy of all war cycles because it’s the one that tends to give birth to world wars and major types of international conflict.

Mike: Hmm.

Larry: I’ve tracked it back a couple of thousand years and really it’s nailed every major war in the history of civilization.

Mike: And again I’d just like to remind our listeners at home, although you can’t see it on you podcast in your car or on your computer, we do have charts of all these cycles including the cycles of war that Larry’s describing on our website so be sure to check that out either during or after the broadcast whenever you get a chance. Just go to www.supercycleinvestor.com. That’s our website, all one word, and you can see all the macro economic cycle charts, as well as the cycles of war. So, Larry, with your spectral analysis you were able to determine that there’s regularity to the cycles of conflict around the world.

Larry: Yes. Yes. This granddaddy war cycle, which again is 53-1/2 years. All cycles, mind you, are made up of smaller cycles.

Mike: Uh-huh.

Larry: So this granddaddy cycle, 53-1/2 year war cycle, is also composed of smaller waves. But if you go back through history, you’ll see that it nailed, I mean everything. We’ll start with the War of 1812. Then it nailed the Civil War. It nailed World War I, the Vietnam War, the Spanish-American Wars, World War II, Korean War. It nailed the peace dividend in the early and mid 1990s after the fall of the Soviet Union. In fact, one of the things that convinced me of the authenticity and the value of my work on wars was in 1985 on Wall Street, I wrote an article based on my war cycles that said August of 1990 was going to be the major next turning point in the war cycles.

Mike: Uh-huh.

Larry: And I kept my clients of my brokerage firm aware of that for several years in front of their minds saying something’s going to happen in August 1990. Everybody of course thought I was nuts. But lo and behold, what happened in August 1990? That’s when Saddam Hussein and Iraq invaded Kuwait and even threatened Saudi Arabia.

Mike: Exactly.

Larry: And that’s when the United States countered with President George Bush and we had Persian Gulf War number one.

Mike: Uh-huh.

Income Inequality and Global Uprisings

Larry: So it works like clockwork, and most recently again at a Weiss Wealth Summit a couple years back, I think it was late 2012, I warned everybody that these cycles were ramping up again and that all the way into 2020 we were going to see an increasingly turbulent period with lots of civil unrest, civil war, and even international war.

Mike: Right.

Larry: And we all know what’s happening. The world is getting more and more dangerous.

Mike: Absolutely and in addition to the granddaddy of the war cycles which is that macro 53-1/2 year cycle you identified that called some of the major conflicts, World War I, the Civil War, World War II, I think another misconception, Larry, is that the war cycles don’t necessarily mean armed conflict though, correct?

Larry: That is correct. Let me put it this way. The data is based on armed conflict, okay?

Mike: Uh-huh.

Larry: But in the 21st century now and the late 20th century we also have other types of wars that are being waged: That is currency wars, trade wars, cyber espionage, so on and so forth. So I have written in just the past couple years quite a few articles about how we are already in World War III, and that World War III is not going to be a war in the traditional sense of World War I or World War II or the Vietnam War or anything like that. But instead, everything that you can possibly imagine: Civil war, international war, cyber espionage, currency wars, trade wars, interest rate wars and that is exactly what is happening. In fact, just a year ago the Pope said we are in World War III. It’s happening.

Mike: Uh-huh.

Larry: And he was right and this is very important because it has a major impact on what we discussed in our last podcast, Mike, about the widening gap between the rich and the poor.

Mike: Right. It all ties back together.

Larry: It all ties back together to the markets, to how to protect your money, how to grow your money. What happens during times of war? The rich can move their money a lot quicker than you and I can.

Mike: Uh-huh.

Larry: And they can invest in things that better protect their money and grow their money a lot more easily than you and I can. So I believe that the Kuznets cycle, which is pointing towards increased disparity between the rich and the poor, is showing that the war cycles are for real and that the rich are going to be moving their money in ways that we should take notice of because it will probably be the key to helping us protect our own money and grow it.

Mike: Absolutely. All right, why don’t we take a short break here and when we do come back, we’ll talk about the cycles of war and what they’re pointing to now for markets and the global economy.

Mike: Okay, welcome back. Larry, you just described the fact that some of your macro economic cycles, the Kuznets cycle for example, which examines the growing gap between the rich and the poor, that cycle is coming to a peak at the same time where we’re seeing the war cycles ramp up. What does that mean for the environment right now where you look around the world and the conflicts that you see and what are the implications for investments?

Larry: Well, it’s clear that when you look around the world today you have the war cycles already exerting their influence. Look at Syria, Iran, Egypt, Yemen, Ukraine. Okay, look at Putin bombing now in Syria, challenging the NATO nations. Look at China challenging the Southeast Asian nations and Japan and even the United States by occupying a lot of the islands in the South China Sea: Very important shipping routes and very important oil and gas reserves there. You have rising neo-Nazism and fascism in Europe. So it’s happening and in many of these areas the rich are already getting richer and the poor are getting poorer. They’re becoming refugees. They’re leaving their homes, leaving everything they own behind to get out of harm’s way.

Mike: Uh-huh.

Larry: So you can see it’s already at work. All of these cycles that we’ve been discussing are already converging and causing this social and economic upheaval all over the globe. The answer is to follow the big, smart money. It always moves first.

Mike: Uh-huh.

Larry: So if you follow the money you too will be able to better protect and grow your wealth.

Mike: And I guess that’s one of the reasons why this income inequality gap gets larger as the cycles of war ramp because the rich can basically profit from warfare.

Larry: Well, they can not only profit from warfare but they have the ability to seek out other types of alternative investments and in to the extent possible these days, get their money off the grid more easily than most of us can. So the bottom line is though you’ve got to look at what they’re doing and understand the context in which they’re doing it and if you do that …

The Wealthy Are Moving Their Money

Mike: Follow the money.

Larry: … you can adjust your strategies accordingly to profit and protect your money. For example, the wealthy for the last few years, the super wealthy, have been buying artwork. They’ve been buying jewelry. They’ve been buying rare coins.

Mike: Uh-huh.

Larry: Why? Because it’s portable wealth. It’s wealth that you can take with you if you have to leave town. It’s also wealth that over the long haul preserves its value and generally appreciates in value and it’s also wealth that you can more easily get off the grid. We have record sales of paintings, coins, and everything over the last few years. Those markets, those collectible high end markets, are red hot. Now, I can’t afford a Pablo Picasso. Almost everyone listening to this can’t afford a Van Gogh or a 14 carat diamond but there are things that we can do in a similar vein to protect and grow our wealth by moving into markets that are similar: Tangible assets, gold at the right time, things like that. So it’s really important to look at what the super rich are doing because the super rich move fast and they’re very, very smart.

Mike: Yeah. Another interesting point you made as well is that when you say follow the money, you notice where this money is moving. Increasingly the super rich are storing their money not in the U.S. or in Europe. They’re yanking it out of Europe. They’re flowing to Asia.

Larry: Yes. There is tremendous investment going on in Asia which ironically is in better financial shape than either Europe or the United States, and in many respects are more free places to do business. It’s easier to do business in Singapore and Hong Kong and many Southeast Asian nations than it is in Europe with all its regulations or the United States with all its regulations.

Mike: Uh-huh.

Larry: Banking is in better shape than in Europe or the United States. So you’re seeing a lot of money head towards Asia and that will continue. But you’re also seeing a lot of money go into the dollar, which is why the dollar is strong. That’s because the dollar, despite America’s problems, is the deepest, most liquid market on the planet. So the dollar remains strong as savvy investors reduce investment in Europe and in other vulnerable areas such as the Middle East. They go to cash, they buy paintings, they buy jewelry, they invest in Asia, so on and so forth and that’s the dynamics of capital flows that are occurring right now.

Mike: And there’s an interesting irony in all this, isn’t there, Larry? You see the cycles of war ramping at the same time that income inequality is getting worse. The gap between the rich and the poor is growing and when you see those two things at work you would think well, the markets are going to get crushed in that kind of an environment, but ironically you believe that most markets are going to head higher.

Larry: Well, yes, that’s the irony. When things look bad most people automatically assume markets are going to crash or enter some sort of bear market. Now, that’s logical. Certainly makes sense on the surface, but history proves otherwise and the most vivid example is actually the Great Depression. In the middle of the Great Depression, what almost no one ever tells you about, even the history books that we study in America about the Great Depression, is that in the middle of the Great Depression, the stock market, the Dow Industrials, rose. From 1932 to 1937 it soared 382% in the middle of the Great Depression. Why? Because Europe was in worse shape than the United States.

Mike: Uh-huh.

Larry: And Europe went bankrupt so capital fled Europe. The rich got their money out as fast as they could and they went into the biggest market that could handle it, which was the Dow Industrials at the time. Same thing is happening again. The U.S. economy is just chugging along at best, Europe is going bankrupt, and our stock market remains strong and it’s heading much higher. Now, most investors, worried about the future of the United States, worried about the future of the world, they’re not in the market. They think the market’s going down and sure, there’ll be pullbacks along the way but the long-term trend for the Dow Industrials is much, much higher as the rest of the world goes to hell in a hand basket.

Mike: So there’s a really important lesson in that, which is if you get too hung up and preoccupied by all the bad news you see in a bad jobs report or poor GDP numbers or bad earnings we’re seeing, you could miss out on some of the biggest moves in the markets that you may ever see over the next few years.

Larry: Absolutely and that’s one my main missions with these podcasts is to educate everyone on the history of how these things happen, what’s happened before and what’s likely to happen again because history is your guide to the future. And that’s so critical today because we’re entering a period that hasn’t been seen before in any of our lifetimes.

Mike: Absolutely and as they say, history doesn’t always repeat exactly but it does rhyme and we’re already seeing markets go up since the 2007 financial crisis. We’ve seen the S&P 500 triple in value so that money is already flowing, as you said, out of Europe into the U.S. just like it did during the 1930s. So looking at the cycles of war, they’re already ramping up as you said: You have Syria, you have the troubles in the Middle East that are growing, you have the Ukraine and what not. Where do you see these cycles ramping over the next several years? When are they going to peak, Larry?

Larry: Well, they’re all converging now and they will remain in convergence mode all the way into 2020-2021 at the latest and basically in a nutshell what you’re going to see over the next five years is deflation striking the major Western socialist governments. Those governments like Europe, Japan, and the United States that engage in cradle to grave type of socialistic policies are going to go bankrupt. They are going to collapse and the confidence we’ve had in our leaders is going to shift away from government back to the private sector. By that I mean the confidence is going to leave government, dump government debt because everyone will start to realize that the governments will never make do on their social promises, or even their government bonds and that they’re going to start raising taxes and fight like caged animals to survive. That means that investors are going to look to other types of investments other than bonds, basically anything that has anything not to do with the government.

Mike: Right.

Commodities Are Bottoming-Out in the Strong Bull Market

Larry: So you’re going to see a very strong bull market in the Dow Jones Industrials, and shortly tangible assets such as commodities and especially gold and silver are going to soon bottom out and take off to the upside even if there’s no inflation because savvy investors will be looking for tangible assets as well. So it’s going to be a bit ironic and it’s very important that everybody understand this because if you look around the world, you’re going to say oh my gosh. The world is falling apart. The United States is losing its number one position. China is on the rise. We better go bury our money in our back yard or we better get out of Dodge. That’s not the answer. The answer is following the money, following the big, savvy money and it’s going to be investing in the freest market of all, the bastion of capitalism, the Dow Industrials and intangible assets as a hedge, not against inflation, but against the crumbling, dying governments.

Mike: So in a nutshell you’re saying that over the next several years investors should expect the unexpected. Even though they may think that we’re headed for a major depression and that stock markets will crash, actually most markets you expect to go up.

Larry: Yes, most markets, almost every market is going to go up, the sole exception being the sovereign debt markets, government bonds, U.S. Treasury bonds, European sovereign debt. Those markets are going to collapse and that’s the irony. This is how the rich are going to get richer because they know this. They know this is happening and the poor are going to get poorer. The poor are going to just sit by and say oh my God, the world’s falling apart. I’m not going to do anything with my money. I’m going to put it in a safe. I’m going to bury it ten feet under the ground in my back yard. That is not the right thinking. The right thinking is to follow the savvy money. Most markets are not going to do what you think they’re going to do. They’re going to do the opposite and the reason for that is everything that we’ve been talking about on these podcasts so far, Mike, and it’s very, very important that everybody understands this because if you want to get richer, if you want to protect your wealth and grow it, and you don’t want to be left behind, you have to think differently today. You have to use the lessons of history.

Mike: So the bottom line here for investors is you just can’t rely on the old model, the old economic rules of thumb. They may not apply going forward.

Larry: That’s right, they won’t. I can guarantee it.

Mike: Wow, this is some amazing information, Larry. I really appreciate it. The cycles of war and economic cycles you covered, just fascinating stuff and really that’s just a taste of what is to come in this podcast series. In fact, in the next several episodes we’re going to talk about the convergence, how these cycles are working together and we’ll also bust some of your favorite market myths in future episodes. But first on our next episode we’re going to tie everything together for you, all the various cycles that Larry’s described including the cycles of war. We’re going to show you precisely how they are intersecting right now and are going to influence the global economy and impact your own personal wealth going forward. It’s called convergence and we’ll give you a roadmap that you’re going to need to help navigate these volatile markets coming up through 2020 and beyond. So please be sure to join us next week here on the Supercycle Investor Podcast and in the meantime don’t forget to visit our website where you’ll see all of our show notes, transcripts, and of course all the visuals, the cycle charts that we’ve been talking about. That website again is www.supercycleinvestor.com. Be sure to check that out before our next episode and, Larry, once again thank you for your time, your insights, and your analysis, truly fascinating stuff.

Larry: Not a problem. I enjoy it. It’s my mission and thank you for helping and hosting, Mike.

Mike: You bet. It’s my pleasure. Until next time for supercycleinvestor.com and Larry Edelson, I’m Mike Burnick. Good investing.

The post No. 004 The Cycles of War appeared first on Supercycle Investor with Larry Edelson.