When I took the CFA Level I last December, I remember a reading on technical analysis that mentioned 54-year Kondratieff cycles. If one were to match up such a cycle with the Great Depression of the 1930s and the recession, savings-and-loan crisis, and Black Monday of the 1980s, then by all rights times should be a-booming right now. Needless to say, this does not appear to be the case today, (as times were, in fact, a-booming in the '50s and '60s.) U.S. dollar interest rates do appear to follow long waves: www.multpl.com/interest-rate/. Notice the troughs at the turn of the century, during the '40s when the “war bonds” were issued, and the present all-time low. But a cycle allowed to vary from 40 to 70 years is not very useful for predictive purposes, because (like the shorter but better-known business cycle) we are simply not able to call the cycles until well after the fact. I do believe, however, that interest rates show mean reversion, (a topic more relevant to my Level II studies for 2013.) In any case I’m frightened off bonds of any duration for the foreseeable future, because it is altogether too plausible a scenario that interest rates could just keep rising and rising until I’m an old man. That’s what happened from 1940 to 1980. Here’s what I see today: costs such as medical care, other insurance premiums, college tuition, gasoline, and other commodities have been rising relentlessly at nigh to double-digit rates ever since the Boskin Commission did its dirty work in the '90s, which the Fed has so far taken at face value. One of these days investors are going to look around uncomfortably and realize that the rising prices they see everywhere they look are just plain old inflation and that the Chairman of the Board of Governors of the Federal Reserve System has no clothes on, all that QE, bond-buying, and other creative money-printing notwithstanding.
I don’t believe in “waves” from a technical standpoint. I do believe in secular bull and bear markets. In the case of interest rates, we’ve been in a secular bull market for 30 years. The question is whether the bull market ends with a pop - as all secular bull markets do - or if we hang out at near-zirp for several years Japan-style.
Either way, the long-term outlook for bonds is poor.
I read somewhere about the approximate 18 year secular bull/bear market.
1910-1929: Bull market
1929-1947: bear market
1947-1965: bull market
1965-1982: bear market
1982-2000: bull market
2000-2018: bear market
I was going to say that there might be a little too much massaging to make me feel comfortable with that, but it seems pretty accurate for the time period. The Dow itself actually hit bottom as early as 1932, but in real terms of waste and destruction of capital, the losses incurred by war dwarfed and overtook those still taking place in the Depression, so you can argue that there was a secular bear market all the way to the end of the war. 1965-1982 was a real bear market, too, considering that neither stocks nor bonds survived a destruction of two-thirds of their value due to the inflation which was rampant at that time, (until Volcker was forced to take extreme measures.) And then the stock market rose to dizzying heights and absurd multiples of price to earnings by the turn of the millennium.