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Long-term Cycles of Commodities, Real Estate, Interest Rates

February 1, 1990

Bryan Kavanagh's work on land price valuation ( is an important addition to the long wave data base, providing another insight to complement those of commodity/wholesale prices, interest rates and stock equity prices.

Each of these data series fluctuates in an approximately 54 year major cycle, but the maxima and minima for each data set are not synchronous. Kavanagh has shown convincingly that the land price cycle has two or three subcycle peaks, and my own work shows that interest rates have two peaks.

Bearing in mind that that commodity/wholesales prices had a stable to disinflationary history -- within a wide band -- from approximately 1750 to 1932( and a steadily inflationary bias since that watershed year, we can see that these centuries long disinflation/inflation cycles impact the shorter 54 year commodity, interest rate, and land cycles.

Nevertheless, over the last four cycles from approximately 1790, we see the following relationships: (Note that the Kondratieff commodity/wholesale price peaks are the momentum peaks. In the inflationary era post 1932, the absolute price peak comes at the end of the so-called plateau period. In addition there is both a momentum bottom and a secondary or "re-rest" bottom. Note also that Kavanagh's land cycle dates are used.)

K Wave
Land Peaks/
KWave Peaks/
Int. Rate Peaks/
Cycle I

Cycle II

Cycle III

Cycle IV
(1825, 1844)


(1921, 49)

(1961,75 , ?)
(1830, 1852)



1816, 26/

1866, 73/

1920, 31/

1974, 81

According to this schema it is commodity/wholesale prices and interest rates which drive the long wave cycle. Commodity prices peak (on a momentum basis) at or very close to the time of the first interest rate peak. Land prices are adversely affected by the first interest rate peak, but fall and go to their final peak some years later. The second interest rate peak comes during the commodity panic drop when borrowers desperately seek funds to keep from going under, whereas the first interest rate peak was caused by the economic expansion drive.

In the down cycle and recovery phase, equity prices bottom as soon as it can be seen that interest rates have clearly peaked -- 1826, 1876, 1932, 1982 -- but it takes longer for commodity and wholesale prices to make their momentum and re-test bottoms --1830/52, 1887/95, 1932/42, 1986/96). The real estate price trough tends to occur at the time of the final interest rate bottom, naturally enough, and nearly at the same time as the commodity/secondary re-test bottom. Although the effect of the Japanese real estate crash both in Japan and in Australia and California (because of Japan) have been more severe than normal, the cycles suggest that real estate is very near to bottom there, as well as elsewhere in that interest rates at the long end are past their bottoms.

Just as equity prices, as noted above, tend to make long term bottoms when interest rates have topped, they often have a short but severe bear market when rates have bottomed, reflecting the return of inflationary pressures. 1946 and, perhaps, 1997 are recent examples of this behavior.

However, we should not expect a supercycle degree decline as in 1929-42 or 1973-82, or even as in 1937 or 1987. The market will very likely have an "inflation return" bear market of a year or more while corporations re-learn how to deal with the reality of inflation and increasing interest rates.

Once they have done so, the more clever amongst them will do well along with resource and real estate stocks for several decades to come.

Nor should we expect rampant inflation even with accelerating growth rates worldwide. While the trend will remain upward in both inflation and interest rates, the inflation blowoff phase is very likely several decades ahead as well.

Since most humans, including economists and market analysts, are conditioned by what they have recently experienced and therefore today still see disinflation as the most probable outcome of our present situation, the study of cycles, as above, suggests the contrary. Clearly the disinflationary news is still with us, from Japan and Europe and much of the third world, but the trend is just as clearly changing. It is during these confusing transitional times that it is hard to see the new trend emerging, unless one has the benefit of cycle analysis.

N.B. Although I have stated that commodity prices and interest rates drive the cycles, I have not addressed the issue of what drives prices and rates, merely the phasing of the different components of the cycle's effects. While both technology and demographics cycles have been proposed as "the" driving force, it is by no means clear that these factors are, any more so than interest rates or commodity prices, "causes" rather than "effects."

From my perspective, regardless of where or when it
exactly happens, there is a classic stock bear market in
our near term future. That may include wildly higher
prices (in an irregular Elliott B wave top), but I doubt
it. There is reason to believe that the tops are mostly
already in place. I believe that they are.

Dr. Tom Drake, Aurophile

The author is president of Tenorio Research, publisher of the Gold FaxLetter - and may be reached at: [email protected] or fax: 505.989.3351.

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.
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