The "Presidential Cycle" and its Effects

March 19, 2002

It's 2002 and the 4-year "Presidential Cycle" is due to bottom in November. With this important investment cycle now in the "hard down" phase for the next eight months it promises to be an exhilarating ride on the Wall Street roller coaster from now until then.

Already we have witnessed the set-up to the next ride down from the latest market peak, as the 8-week and 12-week cycle and 20-week cycle bottoms produced the impressive March rally over the past two weeks. But it's now time for the more dominant longer-term cycles to kick in and largely fulfill our long-standing forecast of a nasty Year 2002 for stock prices. This event will be the product of the combined 2-year, 4-year and 12-year (4-year cycle X 3) cycles all bottoming late in the year (all three of these cycles are harmonically related and a part of the 120-year "Master Cycle" series which bottoms in 2014).

Although the term "Presidential Cycle" is commonly used among market forecasters, few outside of the market technicians really have a grasp of what it is and how it effects stock prices. For an understanding of this extremely important cycle (also known as the "Business Cycle") let's see what other experts have written about it.

Louise McWhirter wrote in her 1938 book, "McWhirter's Theory of Stock Market Forecasting": "The rise and fall of price is governed by the law of Supply and Demand, which is in turn governed by the law of the universe, hitherto unknown or ignored, but known as the law of Action and Reaction. Periods of business prosperity and depression are not man-made nor the result of chance.; they come at regular intervals, the same as the seasons, and the same [universal] laws which govern nature govern man and all man's activities." In this comment, McWhirter lays the foundation for our understanding of the inherent nature of all market cycles and of the operation of the market itself, namely that of action and reaction, impulse and correction, buying and selling, supply and demand. This concept of action and reaction is a product of the idealized market cycle, which is composed of two equal parts - an ascending phase and a descending phase.

The 4-year Business Cycle, or Presidential Cycle, peaks after a 2-year ascent, then falls for an equal two-year declining phase. The Presidential Cycle is so named because it closely corresponds to the state of business and the economy in its relation to presidential politics and White House elections.

Richard Hoskins, author of "War Cycles/Peace Cycles," was one of the first observers to publish a chart which graphically depicted the 4-year cycle in the Dow Jones Industrial Average. He writes, "Every four years the stock market bottoms. Two years later near election day it peaks. Just knowing that gives you a whopping edge."

Continuing, he writes, "Pump money in to make things look good and after the election cut it off. Observe the years 1974, '78, '82, '90, '94 and '98 - all except '86, which occurred a year later. All the rest are market bottoms. Every four years - market bottoms! In the interest-free system of our ancestors there was no such thing as booms and busts such as we see today. But in a usury system where the usurers manipulate the economy to elect their hand-picked politicians, you have inflations and deflations to coincide with elections.

"Congress appropriates money. The president spends it at the time most advantageous for him, just before election. This causes the stock market to rise making voters happy on election day. With the money all spent, after the election the stock market crashes. A new four-year election cycle then starts all over again. If you didn't know this, you may have been fooled into selling at the bottom when others were buying, or buying at the top along about election day when others were selling."

Yet another relative of the 4-year Presidential Cycle (though less famous) is the 20-year "Assassination Cycle." Cycle expert L.J. Jensen noted in 1935 that since the 19th century, every U.S. President who was elected in the following periods either died in office or an assassination attempt was made:

1840 - Harrison, 1860 - Lincoln, 1880 - Garfield, 1900 - McKinley, 1920 - Harding, 1940 - Roosevelt, 1960 - Kennedy, 1980 - Reagan, 2000 - Bush?

The explanations for this eerily recurring phenomenon range from the expansion and contraction of the economy and its consequential effects on mass social and political sentiment (i.e., declines in economic prosperity forces the need for change on the political front) to the threat that Presidents sometimes pose to the debt/usury system in wanting to either abolish the usury banking system or cancel the national debt. Presidents are typically sacrificed on the high altar of mammon and this important 20-year cycle always brings with it major and profound changes to the country's social and economic structure. If this cycle holds true and history continues to repeat, then sometime between now and 2004 - perhaps even this year - we can expect an assassination attempt to be made on the life of President Bush (though God forbid that it should be so).

Not only will the market be at the mercy of the forces of the 4-year and 12-year (not to mention 20-year) cycles, but the long-wave economic cycle itself, the K-Wave," is also in the descending phase at this time and will begin exerting tremendous pressure against the markets over the next couple of years. The K-wave is essentially five (5) Presidential 4-year cycles in a row to form one complete long-wave economic cycle.

Samuel "Bud" Kress, editor of SineScope, poses some intriguing questions and answers regarding the current long-term cycle configurations and where our current position is with respect to them. In a recent market note he writes, "What will the market's potential configuration be for the 7-year period from the end of the first bear market around 2004 until the beginning of the second bear market around 2011? This will be a function of the K-Wave." Its previous bottom was the late 1940s/early 1950s. Typically, it should bottom between 2004-2006. However, since the great depression of the 1930s with the New Deal, government has consistently intervened with efforts to manipulate the economy. The last event bureaucrats want to develop is to have their tax base go south. On the other hand, if natural forces prevail and the K-Wave bottoms in 2004-6, this would imply an economic contraction of 4-6 years. It is interesting to note that the depth of the depression occurred in 1934, 5 years after the market crash of 1929.

The Presidential Cycle, and its long-term counterparts, can be highly useful aids to our trading and investing strategies and can help us to avoid pitfalls commonly associated with secular bear markets, such as the one we are now in. The cycles are telling us that the next 2-4 years ahead will be extremely bumpy ones, so fasten your seatbelts - the roller coaster ride is about to begin!

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

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