I have long been an admirer of the stock market cycle analysis of one Samuel J. "Bud" Kress, proprietor of SJK Capital and publisher of the cycle-based SineScope advisory.
During my 10 year acquaintance with Mr. Kress, I've been privileged to learn of his discovery of a remarkable series of weekly and yearly cycles. These cycles (Kress Cycles as I've taken to calling them) have an amazing correlation to each other and are based on the Fibonacci sequence. More importantly, they have accurately identified the major turning points in the financial markets and the economy over the last several years. The Kress Cycles are predicting a major period of change ahead for the U.S. stock market and economy, particularly between the years 2010-2014.
Using his cycle system, Mr. Kress correctly identified the 1999/2000 stock market top and also the 2002/2003 end to the bear market. More recently, Kress identified the stock market top in 2007 and is looking for the start of a new cyclical bull market to begin soon. Kress recently published a "Special Edition" to his SineScope publication, the sixth one of the past 10 years, with a seventh Special Edition to be published later this year. Each previous Special Edition has been eye-opening in its predictions for equities and thus far has proven to be accurate in its predictions.
Following our previous interview in August, Kress was kind enough grant me another interview concerning his cycle work and investment/economic outlook for the U.S. in the foreseeable future. He also shared his longer-term outlook for gold and commodities.
Q: In the previous interview we talked about the latest Special Edition entitled "The Grand Bull's Terminal Years: 2009-2011." In it you mentioned that America was under liquidation and in serious trouble. Most compelling is the long-term (yearly) cycles warning of a once-in-a-lifetime tsunami during the three year period between 2012-2014. In terms of equity market participation, you mentioned that the traditional "buy and hold" mindset of the long-term fundamental investor has become obsolete and that the "old generals" must change to an intermediate-term orientation (intra-year) to achieve returns on capital. Has your position changed to any significant degree since our last interview?
Kress: Not at all, but it's becoming more confirmed. Let's backtrack momentarily to the first Special Edition published about 10 years ago. It discussed the 1999/2000 top of a super bull market high, the high for the post World War II economic expansion. Accordingly, I've referred to this top as the terminal high not to be potentially exceeded for several decades. It discussed a bear market to last until after 2002. Last year's Special Edition displayed the long term cycles and how they portend a once-in-a-lifetime severe market decline, implying underlying economic devastation from 2012-2014. It discussed that the classic boom-bust credit cycle had peaked and was now in its declining phase with deflation and depression to follow. The current recession could be only the proverbial shot across the bow. Recent unprecedented volatility is the natural reflection of the underlying economic instability. The next three years, 2009-2011, should prove to be a wide trading range prior to the subsequent potential tsunami to begin in 2012.
Q: I understand you plan to publish Special Edition VII in the next few months to be entitled, "Final Opportunities: 2009." Can you provide a preliminary summary?
Kress: It will review the predictions of Special Edition VI, where we are currently, and will provide an individual index corroborating the severity of the deterioration from 2012-2014. It will also suggest the most probable time frame for the intra year high and low for each year of the 2009-2011 trading range, with lower highs being made in the S&P until 2012. The title of the Special Edition refers to the 2009 high as the final opportunity to position portfolios for the ensuing tsunami.
Q In addition to the yearly cycles for the long-term investor, you also track the weekly cycles for the interim oriented participant. Please elaborate.
Kress: In recent years, numerous funds and ETFs have become available for both bull and bear markets thereby affording traders the ability to continuously achieve gains regardless of the market's direction, advancing or declining. The interim reversals provide the potential to employ these innovative vehicles. My weekly cycles identify these intra year reversals. Except for unique, smaller companies which have extraordinary potential, there is no need to purchase major companies, for cumulative interim returns can significantly exceed the longer term gains of major companies. The old general who continues to fight the old war experienced a 0% return of principal for the last eleven years. When adjusted for the decline in the value of the dollar, such an old general is left with a present value of $0.70 per dollar invested.
Q: Let's focus on commodities for a minute. You refer to Kondratieff's discovery of a long-wave in commodity prices as a "K wave" instead of a cycle. Does your 60-year cycle have any relation to the Kondratieff wave?
Kress: Of course it does. The K-wave can be anywhere from 40-80 years, averaging 60 years. The 60-year cycle correlates to the average K-wave. There's an economic significance to the 60-year cycle. Of any cycle, the last 25% is the down phase. In terms of the 60-year cycle, that's 15 years. Fifteen years from 2014 is 1999 when we hit the terminal high. The 60-year cycle has four seasons, like the K-wave: spring, summer, fall and winter. We are now past midway of winter of the 60-year cycle, indicating that deflation began last year and should continue through 2011 and then to begin the three hard down years of depression from 2012-2014.
Q: Based on your knowledge of market history and the cycles can you make some general comments about the long-term future of the gold price?
Kress: I don't track gold on a year to year basis. But there are two thoughts and one must be kept in mind. In a lifetime there are two major periods to buy gold. The first is in the face of hyperinflation because it's the ultimate hedge. In hyper inflation began in the late 1960s until 1981 for about 15 years gold went from $35 to around $800 an ounce. The second period to buy gold is in the face of economic collapse, etc., because it's the ultimate storehouse of value. After peaking in 1980 when hyperinflation ended and disinflation began, gold bottomed in 1999 at about $250/ounce at the beginning of economic winter. It has been going up since then. In the future years it should begin to accelerate when economic collapse comes to bear. Any portion of the similar increase from '66 to '81 bodes for astronomic prices in gold from here. In the more recent decades the "buy and hold" mentality of the long-term fundamental investor was proven gainful with conventional equities. But at the revolutionary changes at the turn of the century this has gone the way of the buggy whip. Consequently, to replace that gold will be the contemporary equivalent and one should retain long-term positions in gold and add to positions on interim corrections. Due to all the innovative vehicles available in recent years without having to buy the bullion, one can participate with gold Exchange Traded Funds (ETFs).
Q: In reference to the tough times ahead that your long-term cycles predict, what U.S. states do you think will emerge relatively unscathed by the economic turmoil in the years to come?
Kress: I think the agrarian states with minimal industrial composition economies will be the best relative performers. States like Iowa, South Dakota and Wyoming which have virtually no industrial base but are primarily involved in the production of essential food commodities should escape the turmoil. When have you ever heard of the agricultural states ever having major financial problems? No, it's always the Rust Belt states of the east or the go-go states like Florida, California and Nevada that have the problems. Owing to the stability of agriculture, the western agrarian states should be relatively stable [during the "hard down" phase of the 60-year cycle which is the equivalent to the average K-wave].
Q: Getting back to the stock market, you're looking for a final cyclical bull market before the last of your long-term cycles peaks next year, correct? What is the significance of 2009 in the cyclical scheme of things? Could the coming cyclical bull market be of the "blow off" variety?
Kress: It's a recovery rally bear market in the economic winter scheme of things and the 2009 high will be significantly lower than the 1999 high. This will be discussed in detail in Special Edition 7 to be forthcoming in the next several months. A maximum upside target of 1,200-1,250 in the S&P 500 is not to be exceeded. I refer to the 1999-2000 high as the terminal high not to be equaled for several decades. The 2009 high will be the recovery high not to be exceeded for a decade or so. While referring to this as a recovery cyclical mini bull market it might also be referred to as an interim advance in an ongoing long-term bear market. Such occurrences can be powerful but equally deceptive.
Q: In a battle between the combined forces of the Federal Reserve, the Treasury and other financial institutions and your major long-term cycles, who wins the battle?
Kress: Big Brother keeps getting better but Mother Nature and Father Time will prevail. What the Fed is doing is an instantaneous response equal to the 1930s, which took several years to respond. It's the ultimate band-aid and buys us some time before Mother Nature and Father Time take over.
Q: I understand you also track the weekly cycles for those participants desiring intra-year value added. From July-October you published several letters. In May you said worst of bear market is yet to come and on Nov. 21 you published that the bear market low had most likely been achieved. On Friday, Jan. 16, you published a letter that the recovery bull market has probably begun, confirming that to be the case on Jan. 23. Are these letters available for public consideration?
Kress: Yes but under the condition that these are experienced interim market participants. A request should be in writing to: Samuel J. Kress, SineScope, 15 Phoenix Ave., Morristown, NJ 07960.
