With a Gloomy Start to 2016, a Bust Seems just Around the Corner
Markets have corrected substantially since the beginning of the year as most of the gains of the past two years have been erased. According to Bloomberg, 40 out of the largest 63 markets have dropped over 20%. The image below shows the performance of markets word-wide since their most recent peaks. Most markets are in a bear market phase or are at best experiencing a strong correction. The world is red!
Where do global markets stand?
A heat map of global stock markets by Bloomberg – click to enlarge.
China’s economy is slowing down and oil prices have slumped to a new multi-year low. Is this the bust phase of the cycle that started in 2008? In our ‘Clean Slate’ report about Austrian Business Cycle Theory, we explained that there appear to be short-term cycles in operation, which last approximately 7 years, but also long-term cycles with a duration of around 50 years.
Those familiar with the bible are aware of the term “jubilee”, which signifies the end of a 50-year long-term debt cycle, when all outstanding debts are annulled and slaves are freed. But before the “jubilee” of our time happens, things are likely to get worse. Governments are apt to take measures that will constrain our liberties further. Their objective is to maintain an artificially centralized system by force – however, eventually this system will fall apart.
Past recessions, such as the oil shock of 1973, the double-dip recession of 1980-81, the stock market crash in 1987, the bond market crash in 1994, the dot-com bubble’s demise in 2001 or the 2008 financial crisis were all busts operating within short-term cycles. We believe that we are approaching the end of the current 7-year cycle.
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