Market Warning: ‘Topping Phase’ Reached Says Cycle | Richard Smith
Summary
Debt Cycle Analysis: The podcast discusses the late stages of a significant debt cycle, with expectations of rising interest rates over the next 5 to 15 years, impacting the US economy and markets.
US Dollar Outlook: A near-term rally in the dollar is expected, but long-term structural problems are anticipated due to escalating trade tensions and the US national debt surpassing $37 trillion.
Market Cycles: Richard Smith emphasizes the importance of understanding market cycles, which are influenced by human behavior and can be analyzed to predict economic trends and market movements.
Inflation and Interest Rates: Rising inflation pressures are expected over the next 12 to 18 months, with the Federal Reserve facing challenges in managing interest rates amidst increasing unemployment and debt servicing costs.
Asymmetric Risks: The combination of rising inflation, unemployment, and debt levels creates asymmetric risks, potentially leading to market volatility and a shift in investor behavior.
Stagflation Concerns: The potential for stagflation is discussed, with debt monetization likely leading to low growth and persistently high inflation, challenging the US economy.
Global Reserve Currency: The podcast questions the future of the US dollar as the world's reserve currency, highlighting pressures from deglobalization and geopolitical tensions.
Bitcoin and Gold: Bitcoin and gold are seen as potential hedges against currency devaluation, with Bitcoin showing vulnerability to cycle headwinds despite benefiting from similar factors as gold.
Transcript
We are in the late stages of a big debt cycle that we have bottomed in that cycle and we're expecting interest rates to go up over the next 5 10 15 years. I am expecting a near-term rally in the dollar but longer term I think the dollar has structural problems in the S&P 500. The daily data are suggesting down in the near term as well into October, November. The US national debt surpassed $37 trillion this week. It's a monumental figure and it just keeps climbing higher. Where does this sit into the multi-deade debt schedule and how did this debt cycle affect our economy and markets? Meanwhile, China recently just sanctioned six US companies this week and halted soybean purchases, escalating the trade war. So we'll talk about how uh this escalation may impact the US dollar and ultimately how market cycles can be analyzed and used by investors. Joining us today is Richard Smith. He is the executive chairman of the foundation for the study of cycles and he's studied 8 to 100year debt cycles and tracks real time liquidity indicators to identify when financial systems reach breaking points. Welcome to the show Richard. Very interesting stuff you're working on. So, I'm happy to have you on the show. >> Great to be here. >> Uh, I was just looking up your website and uh the foundation for the study of cycles dates back to 1941 um after uh the founder Edward Dwey discovered quen cycles in nature and business. Um, I'd like you to please expand on well, not just the history of the organization itself, but the kind of work that you do for the foundation of cycles and how that applies to markets. Let's start there. >> Well, our origins were in economics. Edward Dwey was the chief economist in the Hoover administration and he was tasked with explaining to President Hoover what caused the stock market crash and depression, ensuing depression. and he talked to a 100 economists and got a 100 different answers and decided that he needed to look uh beyond just economics. So he became aware of cycles in economics and then he connected that with cycles in uh wildlife biology with solar cycles. uh chairman of the Smithsonian at the time was on the board along with um the head of the geology department at Yale um and it was quite an interdisciplinary dynamic group studying cycles across all kinds of different phenomena. So I think it was really the precursor to what today we might call complexity science. I actually have my PhD in system science and um so I think we are pursuing an interdisciplinary approach to understanding cycles in our world and certainly in the economy and >> is there a scientific reason as to why economic cycles happen? In other words, why events repeat themselves over a fixed interval? My own belief about it is that markets are the collective actions of human beings and human beings are uh very cyclical uh creatures by our nature right so it's just very natural for um you know things to get going in one direction which is what I think is what's happening right now for example and get kind of strained and then but everybody gets further and further to one side of the boat and then says ah I'm not so sure this boat might not tip over. And so then we start moving back to the other side of the boat and we get cycles. So I think cycles are uh part of life on Earth. I think they're part of humanity and I think it's just the natural behavior of uh collections of human beings doing things together. >> How is a market cycle different from let's say a pattern work? Do we use those words interchangeably in your profession? Uh a market cycle is a pattern. In particular, it's a repeating pattern that repeats at um fairly predictable intervals of time. Okay. So, let's apply that. So, you've measured debt cycles. Um you've studied them at 100 to 80 to 100year uh intervals. Um the US like I mentioned in the beginning just surpassed $37 trillion. Now, um, can you maybe help us put this number into context, uh, according to your work? >> Yeah, so uh, certainly Ray Dallio has been sounding the alarm on big debt cycles. He's done some extraordinary work there and he and others agree that we are in the late stages of a big debt cycle that typically are 80 to 100 years. Um, I've studied interest rates in US debt going back to 1787, for example, and we can see a uh cycle all the way back there and that we have bottomed in that cycle and we're expecting interest rates to go up over the next 5 10 15 years. And when you couple that with the massive debt that the US government has to refinance continuously, every you know basis point and 100 basis points that interest rates move up means higher uh servicing costs on that debt. So that is the essence of a big debt cycle. Uh we're clearly at unsustainable levels right now. there's no real indication that the deficit is about to come down in a meaningful way or that we're about to pay off our debts. So those pressures, those cyclical pressures of interest rates rising over the next 10 and 20 years uh together with the levels of debt are exactly the kind of situation that um you have asymmetric risks. >> I believe you have a chart to illustrate this point. Um why don't we um pull up this chart and take a look here and um yeah so 1787 to 2000 or 2022 um debt cycles in 85 year uh increments. Now um in nominal terms obviously this is an unprecedented uh level but I guess adjusted for inflation and I guess also the growth of the debt right now. Is it truly unprecedented that the debt is growing at this rate that we're presently seeing? >> It is unprecedented. Yes. I mean, we're at debt rates that uh we haven't seen since World War II. >> Okay. Is there a reason as to why this is happening in our economy? >> Uh I believe the reason is the cycles, right? So, um I mean I think we've just gotten to such an extreme here. On this chart, I show for example this uh when 10-year yields back in like uh the end of the 201 uh teens were down near below 2% at 1%. That was absolutely unprecedented. Uh this chart is about 3 years old at this point. So 10-year yields are up here closer above 4% now. So, um, you know, this is like a beach ball being, you know, held under the water here and we would expect it to, uh, rise and pop up above the surface. And indeed, that's what's happened. And we expect this trend to continue for, uh, you know, this is what 1983 down. So, it's about a um 85 year cycle. So, that's 40 years on both sides of that cycle. Now, that's not uh um it doesn't correlate perfectly, but the pressure on rates is up and will continue to be up for a significant period of time. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored and tracked by data broker websites all over the internet, even without you knowing. That's where today's sponsor comes in. Delete Me. I use Delete Me to protect my privacy. And here's how. It helps you. It's a platform that helps you remove your personal data like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And Delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidin and use the promo code davidin at checkout to get 20% off of US plans link down below or scan the QR code to get started today. >> Okay, so if you're expecting the 10-year yield to rise or the long end of the curve to rise, typically that coincides with higher inflation as well as you can see in your on your chart. it peaked around the mid uh or the early 80s when there was very high double-digit inflation in the US. So are you also making the similar assumption on inflation that it will also rise alongside the cycle? >> Uh I have a chart here of the CPI. >> Mhm. >> This is the monthly data on CPI and it's the blue line here. This is our cycle analysis technology. The CPI here uh as of the end of August was about 2.94. Uh you can see inflation is moving up now not down. And this uh is a 64month cycle in inflation. You can see it. We do what's called spectral analysis of the data or 4A analysis. And you can see a very sharp spike here at 64 months on the spectrum. And that's the cycle that we've plotted here. And we are moving into the early stages of an upcycle in the CPI. And this bottom indicator down here is a momentum indicator. It's a proprietary momentum indicator that shows that we're at uh quite low levels of momentum but turning up as well. So this is a another indication that even in the short term there are inflation pressures in the economy and they're not likely to abate uh you know for at least another um 12 to 18 months. Uh so you know the Federal Reserve may try to lower rates more but they're going to be struggling with sticky to higher inflation. And interestingly also there's a 67month cycle in the unemployment rate and we're also into a rising unemployment trend according to that cycle uh as well that still has some room to run. So yes, we are seeing higher pressures on unemployment and we've been we anticipated those a while ago. So there is pressure for the Fed to lower rates based on higher unemployment, but it's happening in the face of persistent and sticky and probably even rising inflation over the next 12 to 18 months. So the economy is in a difficult spot and because we have this extreme debt and the problem of as rates rise, the cost to service that debt rises. Uh again I think it puts us in a situation uh that a we call um asymmetric risk right so if something unexpected happens if things get surprisingly volatile uh there's a big risk that everybody starts running for the exits so Richard markets I'm talking about stocks in particular at all-time highs uh risk assets including cryptos and bitcoin bitcoin in particular reaching all new all-time highs we we we haven't seen u some of these um cycles that you're talking about uh affect capital markets yet or has it? I'll let you answer that. Um how does the uptick in inflation, how does the uptick in the um long end of the curve, how does the uptick in unemployment, for example, how will that eventually impact markets? >> So I think that what's happening right now is we are getting a relief rate rally with the idea that the Fed is going to lower rates. If they lower rates dramatically, I think that's going to create um a significant problem for equities in the long run. Although, of course, it could lead to an explosive blowoff top rally. But let me show you maybe the most famous cycle. In fact, Edward Dwey wrote about this back in 1972 in his first uh in his book that we brought back into print recently. cycles, the mysterious forces that trigger events. And um this is the S&P 500 weekly data right here. And let me just remove the cycle from the screen for the moment. But uh you can see down here in the spectrum there's a very clear peak at around 188 weeks, which happens to be 42 months. And if we plot that cycle, you know, we can see that uh it caught the latest the last top had a down move and then we caught this top and had a down move. But now we've moved significantly higher um kind of defying uh the cycle and that happens sometimes. But we also see that we've got these decreasing peaks in momentum. And uh this cycle go dates back to the mid 1800s. You can track it back that far. And if I even here looking at all this data, if I take it all the way back to how far do I have it uh 1928, you can still see that this 183 week cycle is very prominent on the spectrum, which means that it's statistically significant in the data. So this is uh a very strong cycle. We are in the late stages of this cycle right now. And if I drill down and look at the daily data now this is the daily data on the S&P 500 then we can see that the daily data the cycles in the daily data are suggesting down in the near term as well into October, November. How do you decide on uh the frequency of the troughs and and the peaks? Because presumably you could just extend that and that would change your analysis, right? >> You do have to test different um durations in the data. We try to get at least four or five iterations of a cycle that we want to validate with the data. Um, but sometimes, you know, like I just did on the S&P 500, we went back all the way to 1928. >> And we can see that that cycle uh is very present and strong in the data consistently over that whole period of time. So when I see a cycle like that, that gives me a lot of confidence that it's something worth paying attention to that it has persisted in the data for that many iterations. is what is it? 20 * uh sorry 42 months is about 3 and 1/2 years and all the way back to 1928 that's 100 years. So that's over 30 iterations of that cycle and been statistically significant through all that time. >> And the the magnitude of gains or losses during bulls and uh bear cycles, do those repeat as well? >> No. And cycles really don't give you magnitude. They're more about timing. So, um it's one of the ways you can get yourself in trouble with cycles is you can look at uh something that looks like it should have a big magnitude and it ends up not. But I do think right now that as I've been saying, I do think there is an asymmetric risk because we are at a late stage of the debt cycle. have rising inflation, we have rising unemployment, and we're also at the late stages of a pretty wellestablished 5 and a halfyear liquidity cycle. And as liquidity starts to dry up, uh as spreads start to widen and credit, all of those things are uh warning signs for, you know, when the music might stop, so to speak. But we're not there yet. You know, the music hasn't stopped yet. People are still dancing. >> Well, where does this debt situation go next? A $ 37 trillion situation. Do we uh does a Fed find a way to monetize this debt? Does the government just print its way out of it? Uh does inflation happen or does eventually something break and then we need to revisit the financial system altogether? What what comes next? >> My own view is um what what what's called stagflation light, right? So, I do think that the government is going to monetize the debt. Uh, I think that's inevitable. It has to be monetized. It just can't be paid off at these levels and have the economy continue to thrive. And so, I do think we'll see debt monetization. And I think that that's going to uh make growth difficult, right? Because when you're monetizing the debt, you're that's called fiscal dominance, right? You're the the the debt needs of the government are dominating capital flows and that makes growth difficult and it does increase inflation. So that's the formula for stagflation, low growth and uh you know maybe not runaway inflation but certainly persistently sticky to gradually higher inflation. What about the notion that nothing is going to change at all? If you take a look at the nominal value of debt, it's been rising pretty much in a straight line since the beginning of time. And so GDP has in in in in most situations caught up. If if GDP continues to keep up such that the debt to GDP ratio doesn't change dramatically to the upside, um then you know nothing really changes. Do you you know what what what credence do you give to that view? I think it's problematic because I think nothing changing uh is the status quo that we're in right now is an incredible um wealth divide, right? The lower income uh citizens certainly in the United States are not growing their wealth. It's mostly the upper, you know, 1 to 5% that are growing their wealth and that's where most of the wealth growth is happening. So that is a problem in our uh economy and in our society right now. I know that President Trump is really trying to do something about it. I'm not convinced that he is going to succeed, but everybody knows it's a problem and the status quo is going to be problematic. You know, I' I'd say it's status quo at best. So, I believe that status quo isn't good enough right now to really solve the deeper systemic um uh economic issues that we're experiencing in the United States. >> Where does that leave the US dollar of let's say the wealth gap eventually or continues to widen uh some of these fundamental problems and our economy doesn't get fixed. We enter a stagflationary environment like you mentioned. Does the dollar remain the world's de facto reserve currency? >> I think that is the big question, right? I mean, that is the the dollar as the world's reserve currency is really the lynch pin of the global economy period. That is the most baked in assumption that everybody has about how the world works, you know, and um it's problematic. And I covered this pretty extensively on my YouTube channel last week where I went over how the dollar and the treasuries in work together, right? So treasuries are basically dollars. They're considered the most safest collateral in the world and people exchange treasuries for dollars and vice versa. So if treasuries continue to kind of uh you know go down with yields going up then that creates more pressure on the dollar. So you could always see a huge um flight to safety rally in the dollar and I think we could well see that soon because the dollar has been down gone down too far too fast. Um, so I am kind of from a cycles perspective expecting a near-term rally in the dollar, but longer term I think the dollar has structural problems. And it's not clear to me that the deglobalization and decoupling that we're all witnessing right now, although I think in some ways it's well-intentioned, um, I don't think that bodess well for the dollar longer term. We know that President Trump wants the dollar lower to ultimately um support American exports. So all of that seems to put the dollar in a fragile position to me. And um meanwhile, the dollar is really uh the um the most basic assumption about how the global economy works is that the dollar is the reserve currency and it's and it's worth it. So I think that pressure on the dollar is going to be a problem. >> So per your explanation, if treasuries are just like a collateral and we're flooding the system with 37 trillion worth of basically treasuries, does that make the collateral more or less uh reliable or trustworthy? I think it makes the collateral less trustworthy. And I think that um you know if the deglobalization continues and other countries decide that they have to take care of number one so to speak and they stop buying our treasuries you know the way the system works is take a country like China right they make stuff and they sell it to us and they get dollars back in return and then they trade those dollars for treasuries. So if we really are going to be decoupling from China, that's going to be a massive change in the flow of dollars and treasuries and certainly China is one of the biggest holders of treasuries. They don't want treasuries to uh you know plummet in value right away, right? So there's there's still some mutual interest in supporting treasuries. But these are definitely tensions that everybody needs to be aware of and that as I've been saying I think create a situation of asymmetric risk where everybody can run for the exits at once. >> Well, going back to your cycle analysis of the uh uh long-term yields going up now um into a multi-year or multi-deade uptick of the yields and I guess bare market for bonds. Well, Trump wants the Federal Reserve to lower rates, and in fact, the next Fed chair will most likely be somebody that is proTrump and will lower rates. How does that affect your cycles analysis? >> Uh, it doesn't affect the long-term cycles analysis. I think it certainly can affect the short-term cycles analysis. I think that we've seen that, uh, the Federal Reserve and the Federal Government can override the cycles for a period of time. Um, but I think that ultimately that's going to be a shortsighted move that is uh going to make the uh asymmetric risks even more extreme. Going back to China US relations like I mentioned in the beginning new sanctions imposed by China. And I think the broader question that I have is does your cycles analysis um analyze trends in uh emerging and or um waning superpowers. In other words, the rise and fall of empires. Does that is that factored into per per your analysis? >> So cycles analysis can be done on any time series data. So if you have the data on the rise and fall of empires and there have been studies on that there was a famous professor Raymond Wheeler whose work was supported by the foundation for the study of cycles studying the rise and fall of empires together with climate. That is another theme that is coming up again today. People are researching how climate impacts economies and cultures. So I don't have that data myself. I don't have a source of that data but I think people like Ray Dallio another one Peter Turchin uh from the Santa Fe Institute who's been studying how um of course there's Neil How and generational cycles the fourth turning right but uh Peter Turchin studies what he calls cleo dynamics and one of the things he's looking at is the um how basically as a as an economy um you know grows prospers and then you get too many elites that are, you know, have gotten a great education and want to help lead, but there's not enough leading uh leadership chairs. So, you end up getting this competition amongst elites in the late stages of these cycles as well. And I think that is a pretty good characterization of what we're experiencing today with social media where you have everybody wanting to, you know, have their own say uh and a lot of people with um a lot to say. So all of those things I think are very suggestive of these uh longer term um superpower cycles. I have I don't have the data to study those myself. So I can't comment on them from the type of cycles analysis that we do. But certainly as a person interested in cycles, I'm following all those different researchers carefully. >> So China is now currently buying fewer US goods and sanctioning US companies. Presumably, we're seeing this decoupling between China and the US. What will happen to Treasury's demand? If there truly is a decoupling, it'll absolutely impair the demand for treasuries because China China has been one of the biggest buyers of treasuries. >> Okay. Does that >> I personally am not convinced that Trump or Xi really want the decoupling right now. I think there's a lot of gamesmanship going on, but again, that gamesmanship creates asymmetric risks. So um I think that there will be a slow decoupling over time that will continue to contribute to higher treasury rates. People have speculated Ray Dallio himself has on Twitter X uh said that the return to the gold standard is possible. Maybe not immediately but a return to the bread and wood system is uh is possible in our lifetimes. The bread andwood system as you know um ended in the 70s. It's only about 80 years old now if you factor in the start date and you're tracking 80 to 100year debt cycles. So maybe are we seeing the end of our current financial system? >> I think that is absolutely something that we have to give some consideration to. These things are um slow. They're unpredictable. But we absolutely are at the end of an 80year uh um cycle. And it's what Neil How's talking about in the fourth turning if you're familiar with his work at all. We certainly see a generational gap, right? The unemployment in the youth right now is much higher than the unemployment for the boomers. There's generational uh warfare going on right now. And um all of those things contribute to an intense time of um of swirling forces that feel very chaotic and ultimately um will lead to change one way or another. >> My final question for you, well actually it was so much of a question as a request. Can you please show us using some of the tools and indicators that you have in your in your toolbox um how Bitcoin is going to look? Uh maybe you can apply cycles analysis to Bitcoin. A lot of our viewers are >> interested here. All right. So, uh let me just start from scratch here. So, I'm going to start out looking at weekly data on Bitcoin going back to uh 2014. That's as long as it's available from Yahoo Finance. So, uh, if we look here, we see, uh, so we've got 600 or about 700 weeks of data here. That's not really a lot for doing a cycles analysis, but if we look at, for example, one of the most prominent cycles on the chart here is this 84 week cycle. And we're seeing it at a topping phase of the cycle right now. And again down here we see this is a proprietary uh momentum indicator. It's called the cyclic RSI. And we can see that we have a series of descending uh tops in momentum while we have an ascending series of prices. So this is a classic momentum divergence situation and um and the cycle is uh just past its peak. So on a weekly basis, uh, I'd say that's of concern. And this 84 week, then there's this 163 week, which you'll notice is two times 84. So there's often a harmonic relationship in cycles. And both of them together are suggestive of risk for a significant correction in Bitcoin. And if I drill down to the daily cycles in Bitcoin, again, let me just start this analysis from scratch now. So, this is kind of a fractal approach to cycles analysis. Um, now we're looking at daily data and we're going back uh just to um June of 2022 or so here. Uh we see a quite prominent cycle here at 58 days suggesting possibly a little more upside and this 209day cycle is also quite prominent. Uh you know so on the daily charts I think there's room for a little more upside in Bitcoin. maybe one last new high. But uh longer term over the next uh year to two years, I think that uh together with the riskoff concerns in the economy period that Bitcoin from the cycles perspective also is vulnerable to um uh some cycle headwinds. At the same time, you know, I do think that Bitcoin is enjoying some of the same benefits that gold is enjoying. I think that Bitcoin and gold together actually are quite a nice combination and they are relatively uncorrelated to each other. So, you get some good diversification between them. But I think when as people are seriously asking themselves, is the US dollar going to be the reserve currency of the world? then both gold and bitcoin benefit from being a hedge against uh the worst case scenario there. >> Excellent. Thank you very much, Richard. Where can we find your work? >> We our most uh active space is YouTube at Cycles TV FSCTV and you can follow us and sign up for our uh newsletter at cycles.org. We are not for-p profofit. Our newsletter is about once a month, but we have several shows each week on YouTube, especially on Monday and Tuesday. My partner Lars Vontinean and myself lead that along with some other regular contributors. So, that's the best place to keep in touch with our work. >> And what I like about your channel is that it's not just about market cycles. You talked about the cycles of nature and life. So, get a good >> some really interesting interviews. Uh marine permaculture was an interesting one recently and uh we also have done some climate research interviews and um uh lots more to come. >> This is fascinating. Yeah, you're talking about the science behind societal cycles, DNA. Very interesting stuff. All right. Well, we'll we'll put the links down below, so make sure to follow Cycles TV and Richard's work there. Thank you again for coming on the show. We'll speak to you again soon. Take care for now. >> Thank you, David. Thank you for watching and don't forget to like and subscribe.
Market Warning: ‘Topping Phase’ Reached Says Cycle | Richard Smith
Summary
Transcript
We are in the late stages of a big debt cycle that we have bottomed in that cycle and we're expecting interest rates to go up over the next 5 10 15 years. I am expecting a near-term rally in the dollar but longer term I think the dollar has structural problems in the S&P 500. The daily data are suggesting down in the near term as well into October, November. The US national debt surpassed $37 trillion this week. It's a monumental figure and it just keeps climbing higher. Where does this sit into the multi-deade debt schedule and how did this debt cycle affect our economy and markets? Meanwhile, China recently just sanctioned six US companies this week and halted soybean purchases, escalating the trade war. So we'll talk about how uh this escalation may impact the US dollar and ultimately how market cycles can be analyzed and used by investors. Joining us today is Richard Smith. He is the executive chairman of the foundation for the study of cycles and he's studied 8 to 100year debt cycles and tracks real time liquidity indicators to identify when financial systems reach breaking points. Welcome to the show Richard. Very interesting stuff you're working on. So, I'm happy to have you on the show. >> Great to be here. >> Uh, I was just looking up your website and uh the foundation for the study of cycles dates back to 1941 um after uh the founder Edward Dwey discovered quen cycles in nature and business. Um, I'd like you to please expand on well, not just the history of the organization itself, but the kind of work that you do for the foundation of cycles and how that applies to markets. Let's start there. >> Well, our origins were in economics. Edward Dwey was the chief economist in the Hoover administration and he was tasked with explaining to President Hoover what caused the stock market crash and depression, ensuing depression. and he talked to a 100 economists and got a 100 different answers and decided that he needed to look uh beyond just economics. So he became aware of cycles in economics and then he connected that with cycles in uh wildlife biology with solar cycles. uh chairman of the Smithsonian at the time was on the board along with um the head of the geology department at Yale um and it was quite an interdisciplinary dynamic group studying cycles across all kinds of different phenomena. So I think it was really the precursor to what today we might call complexity science. I actually have my PhD in system science and um so I think we are pursuing an interdisciplinary approach to understanding cycles in our world and certainly in the economy and >> is there a scientific reason as to why economic cycles happen? In other words, why events repeat themselves over a fixed interval? My own belief about it is that markets are the collective actions of human beings and human beings are uh very cyclical uh creatures by our nature right so it's just very natural for um you know things to get going in one direction which is what I think is what's happening right now for example and get kind of strained and then but everybody gets further and further to one side of the boat and then says ah I'm not so sure this boat might not tip over. And so then we start moving back to the other side of the boat and we get cycles. So I think cycles are uh part of life on Earth. I think they're part of humanity and I think it's just the natural behavior of uh collections of human beings doing things together. >> How is a market cycle different from let's say a pattern work? Do we use those words interchangeably in your profession? Uh a market cycle is a pattern. In particular, it's a repeating pattern that repeats at um fairly predictable intervals of time. Okay. So, let's apply that. So, you've measured debt cycles. Um you've studied them at 100 to 80 to 100year uh intervals. Um the US like I mentioned in the beginning just surpassed $37 trillion. Now, um, can you maybe help us put this number into context, uh, according to your work? >> Yeah, so uh, certainly Ray Dallio has been sounding the alarm on big debt cycles. He's done some extraordinary work there and he and others agree that we are in the late stages of a big debt cycle that typically are 80 to 100 years. Um, I've studied interest rates in US debt going back to 1787, for example, and we can see a uh cycle all the way back there and that we have bottomed in that cycle and we're expecting interest rates to go up over the next 5 10 15 years. And when you couple that with the massive debt that the US government has to refinance continuously, every you know basis point and 100 basis points that interest rates move up means higher uh servicing costs on that debt. So that is the essence of a big debt cycle. Uh we're clearly at unsustainable levels right now. there's no real indication that the deficit is about to come down in a meaningful way or that we're about to pay off our debts. So those pressures, those cyclical pressures of interest rates rising over the next 10 and 20 years uh together with the levels of debt are exactly the kind of situation that um you have asymmetric risks. >> I believe you have a chart to illustrate this point. Um why don't we um pull up this chart and take a look here and um yeah so 1787 to 2000 or 2022 um debt cycles in 85 year uh increments. Now um in nominal terms obviously this is an unprecedented uh level but I guess adjusted for inflation and I guess also the growth of the debt right now. Is it truly unprecedented that the debt is growing at this rate that we're presently seeing? >> It is unprecedented. Yes. I mean, we're at debt rates that uh we haven't seen since World War II. >> Okay. Is there a reason as to why this is happening in our economy? >> Uh I believe the reason is the cycles, right? So, um I mean I think we've just gotten to such an extreme here. On this chart, I show for example this uh when 10-year yields back in like uh the end of the 201 uh teens were down near below 2% at 1%. That was absolutely unprecedented. Uh this chart is about 3 years old at this point. So 10-year yields are up here closer above 4% now. So, um, you know, this is like a beach ball being, you know, held under the water here and we would expect it to, uh, rise and pop up above the surface. And indeed, that's what's happened. And we expect this trend to continue for, uh, you know, this is what 1983 down. So, it's about a um 85 year cycle. So, that's 40 years on both sides of that cycle. Now, that's not uh um it doesn't correlate perfectly, but the pressure on rates is up and will continue to be up for a significant period of time. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored and tracked by data broker websites all over the internet, even without you knowing. That's where today's sponsor comes in. Delete Me. I use Delete Me to protect my privacy. And here's how. It helps you. It's a platform that helps you remove your personal data like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And Delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidin and use the promo code davidin at checkout to get 20% off of US plans link down below or scan the QR code to get started today. >> Okay, so if you're expecting the 10-year yield to rise or the long end of the curve to rise, typically that coincides with higher inflation as well as you can see in your on your chart. it peaked around the mid uh or the early 80s when there was very high double-digit inflation in the US. So are you also making the similar assumption on inflation that it will also rise alongside the cycle? >> Uh I have a chart here of the CPI. >> Mhm. >> This is the monthly data on CPI and it's the blue line here. This is our cycle analysis technology. The CPI here uh as of the end of August was about 2.94. Uh you can see inflation is moving up now not down. And this uh is a 64month cycle in inflation. You can see it. We do what's called spectral analysis of the data or 4A analysis. And you can see a very sharp spike here at 64 months on the spectrum. And that's the cycle that we've plotted here. And we are moving into the early stages of an upcycle in the CPI. And this bottom indicator down here is a momentum indicator. It's a proprietary momentum indicator that shows that we're at uh quite low levels of momentum but turning up as well. So this is a another indication that even in the short term there are inflation pressures in the economy and they're not likely to abate uh you know for at least another um 12 to 18 months. Uh so you know the Federal Reserve may try to lower rates more but they're going to be struggling with sticky to higher inflation. And interestingly also there's a 67month cycle in the unemployment rate and we're also into a rising unemployment trend according to that cycle uh as well that still has some room to run. So yes, we are seeing higher pressures on unemployment and we've been we anticipated those a while ago. So there is pressure for the Fed to lower rates based on higher unemployment, but it's happening in the face of persistent and sticky and probably even rising inflation over the next 12 to 18 months. So the economy is in a difficult spot and because we have this extreme debt and the problem of as rates rise, the cost to service that debt rises. Uh again I think it puts us in a situation uh that a we call um asymmetric risk right so if something unexpected happens if things get surprisingly volatile uh there's a big risk that everybody starts running for the exits so Richard markets I'm talking about stocks in particular at all-time highs uh risk assets including cryptos and bitcoin bitcoin in particular reaching all new all-time highs we we we haven't seen u some of these um cycles that you're talking about uh affect capital markets yet or has it? I'll let you answer that. Um how does the uptick in inflation, how does the uptick in the um long end of the curve, how does the uptick in unemployment, for example, how will that eventually impact markets? >> So I think that what's happening right now is we are getting a relief rate rally with the idea that the Fed is going to lower rates. If they lower rates dramatically, I think that's going to create um a significant problem for equities in the long run. Although, of course, it could lead to an explosive blowoff top rally. But let me show you maybe the most famous cycle. In fact, Edward Dwey wrote about this back in 1972 in his first uh in his book that we brought back into print recently. cycles, the mysterious forces that trigger events. And um this is the S&P 500 weekly data right here. And let me just remove the cycle from the screen for the moment. But uh you can see down here in the spectrum there's a very clear peak at around 188 weeks, which happens to be 42 months. And if we plot that cycle, you know, we can see that uh it caught the latest the last top had a down move and then we caught this top and had a down move. But now we've moved significantly higher um kind of defying uh the cycle and that happens sometimes. But we also see that we've got these decreasing peaks in momentum. And uh this cycle go dates back to the mid 1800s. You can track it back that far. And if I even here looking at all this data, if I take it all the way back to how far do I have it uh 1928, you can still see that this 183 week cycle is very prominent on the spectrum, which means that it's statistically significant in the data. So this is uh a very strong cycle. We are in the late stages of this cycle right now. And if I drill down and look at the daily data now this is the daily data on the S&P 500 then we can see that the daily data the cycles in the daily data are suggesting down in the near term as well into October, November. How do you decide on uh the frequency of the troughs and and the peaks? Because presumably you could just extend that and that would change your analysis, right? >> You do have to test different um durations in the data. We try to get at least four or five iterations of a cycle that we want to validate with the data. Um, but sometimes, you know, like I just did on the S&P 500, we went back all the way to 1928. >> And we can see that that cycle uh is very present and strong in the data consistently over that whole period of time. So when I see a cycle like that, that gives me a lot of confidence that it's something worth paying attention to that it has persisted in the data for that many iterations. is what is it? 20 * uh sorry 42 months is about 3 and 1/2 years and all the way back to 1928 that's 100 years. So that's over 30 iterations of that cycle and been statistically significant through all that time. >> And the the magnitude of gains or losses during bulls and uh bear cycles, do those repeat as well? >> No. And cycles really don't give you magnitude. They're more about timing. So, um it's one of the ways you can get yourself in trouble with cycles is you can look at uh something that looks like it should have a big magnitude and it ends up not. But I do think right now that as I've been saying, I do think there is an asymmetric risk because we are at a late stage of the debt cycle. have rising inflation, we have rising unemployment, and we're also at the late stages of a pretty wellestablished 5 and a halfyear liquidity cycle. And as liquidity starts to dry up, uh as spreads start to widen and credit, all of those things are uh warning signs for, you know, when the music might stop, so to speak. But we're not there yet. You know, the music hasn't stopped yet. People are still dancing. >> Well, where does this debt situation go next? A $ 37 trillion situation. Do we uh does a Fed find a way to monetize this debt? Does the government just print its way out of it? Uh does inflation happen or does eventually something break and then we need to revisit the financial system altogether? What what comes next? >> My own view is um what what what's called stagflation light, right? So, I do think that the government is going to monetize the debt. Uh, I think that's inevitable. It has to be monetized. It just can't be paid off at these levels and have the economy continue to thrive. And so, I do think we'll see debt monetization. And I think that that's going to uh make growth difficult, right? Because when you're monetizing the debt, you're that's called fiscal dominance, right? You're the the the debt needs of the government are dominating capital flows and that makes growth difficult and it does increase inflation. So that's the formula for stagflation, low growth and uh you know maybe not runaway inflation but certainly persistently sticky to gradually higher inflation. What about the notion that nothing is going to change at all? If you take a look at the nominal value of debt, it's been rising pretty much in a straight line since the beginning of time. And so GDP has in in in in most situations caught up. If if GDP continues to keep up such that the debt to GDP ratio doesn't change dramatically to the upside, um then you know nothing really changes. Do you you know what what what credence do you give to that view? I think it's problematic because I think nothing changing uh is the status quo that we're in right now is an incredible um wealth divide, right? The lower income uh citizens certainly in the United States are not growing their wealth. It's mostly the upper, you know, 1 to 5% that are growing their wealth and that's where most of the wealth growth is happening. So that is a problem in our uh economy and in our society right now. I know that President Trump is really trying to do something about it. I'm not convinced that he is going to succeed, but everybody knows it's a problem and the status quo is going to be problematic. You know, I' I'd say it's status quo at best. So, I believe that status quo isn't good enough right now to really solve the deeper systemic um uh economic issues that we're experiencing in the United States. >> Where does that leave the US dollar of let's say the wealth gap eventually or continues to widen uh some of these fundamental problems and our economy doesn't get fixed. We enter a stagflationary environment like you mentioned. Does the dollar remain the world's de facto reserve currency? >> I think that is the big question, right? I mean, that is the the dollar as the world's reserve currency is really the lynch pin of the global economy period. That is the most baked in assumption that everybody has about how the world works, you know, and um it's problematic. And I covered this pretty extensively on my YouTube channel last week where I went over how the dollar and the treasuries in work together, right? So treasuries are basically dollars. They're considered the most safest collateral in the world and people exchange treasuries for dollars and vice versa. So if treasuries continue to kind of uh you know go down with yields going up then that creates more pressure on the dollar. So you could always see a huge um flight to safety rally in the dollar and I think we could well see that soon because the dollar has been down gone down too far too fast. Um, so I am kind of from a cycles perspective expecting a near-term rally in the dollar, but longer term I think the dollar has structural problems. And it's not clear to me that the deglobalization and decoupling that we're all witnessing right now, although I think in some ways it's well-intentioned, um, I don't think that bodess well for the dollar longer term. We know that President Trump wants the dollar lower to ultimately um support American exports. So all of that seems to put the dollar in a fragile position to me. And um meanwhile, the dollar is really uh the um the most basic assumption about how the global economy works is that the dollar is the reserve currency and it's and it's worth it. So I think that pressure on the dollar is going to be a problem. >> So per your explanation, if treasuries are just like a collateral and we're flooding the system with 37 trillion worth of basically treasuries, does that make the collateral more or less uh reliable or trustworthy? I think it makes the collateral less trustworthy. And I think that um you know if the deglobalization continues and other countries decide that they have to take care of number one so to speak and they stop buying our treasuries you know the way the system works is take a country like China right they make stuff and they sell it to us and they get dollars back in return and then they trade those dollars for treasuries. So if we really are going to be decoupling from China, that's going to be a massive change in the flow of dollars and treasuries and certainly China is one of the biggest holders of treasuries. They don't want treasuries to uh you know plummet in value right away, right? So there's there's still some mutual interest in supporting treasuries. But these are definitely tensions that everybody needs to be aware of and that as I've been saying I think create a situation of asymmetric risk where everybody can run for the exits at once. >> Well, going back to your cycle analysis of the uh uh long-term yields going up now um into a multi-year or multi-deade uptick of the yields and I guess bare market for bonds. Well, Trump wants the Federal Reserve to lower rates, and in fact, the next Fed chair will most likely be somebody that is proTrump and will lower rates. How does that affect your cycles analysis? >> Uh, it doesn't affect the long-term cycles analysis. I think it certainly can affect the short-term cycles analysis. I think that we've seen that, uh, the Federal Reserve and the Federal Government can override the cycles for a period of time. Um, but I think that ultimately that's going to be a shortsighted move that is uh going to make the uh asymmetric risks even more extreme. Going back to China US relations like I mentioned in the beginning new sanctions imposed by China. And I think the broader question that I have is does your cycles analysis um analyze trends in uh emerging and or um waning superpowers. In other words, the rise and fall of empires. Does that is that factored into per per your analysis? >> So cycles analysis can be done on any time series data. So if you have the data on the rise and fall of empires and there have been studies on that there was a famous professor Raymond Wheeler whose work was supported by the foundation for the study of cycles studying the rise and fall of empires together with climate. That is another theme that is coming up again today. People are researching how climate impacts economies and cultures. So I don't have that data myself. I don't have a source of that data but I think people like Ray Dallio another one Peter Turchin uh from the Santa Fe Institute who's been studying how um of course there's Neil How and generational cycles the fourth turning right but uh Peter Turchin studies what he calls cleo dynamics and one of the things he's looking at is the um how basically as a as an economy um you know grows prospers and then you get too many elites that are, you know, have gotten a great education and want to help lead, but there's not enough leading uh leadership chairs. So, you end up getting this competition amongst elites in the late stages of these cycles as well. And I think that is a pretty good characterization of what we're experiencing today with social media where you have everybody wanting to, you know, have their own say uh and a lot of people with um a lot to say. So all of those things I think are very suggestive of these uh longer term um superpower cycles. I have I don't have the data to study those myself. So I can't comment on them from the type of cycles analysis that we do. But certainly as a person interested in cycles, I'm following all those different researchers carefully. >> So China is now currently buying fewer US goods and sanctioning US companies. Presumably, we're seeing this decoupling between China and the US. What will happen to Treasury's demand? If there truly is a decoupling, it'll absolutely impair the demand for treasuries because China China has been one of the biggest buyers of treasuries. >> Okay. Does that >> I personally am not convinced that Trump or Xi really want the decoupling right now. I think there's a lot of gamesmanship going on, but again, that gamesmanship creates asymmetric risks. So um I think that there will be a slow decoupling over time that will continue to contribute to higher treasury rates. People have speculated Ray Dallio himself has on Twitter X uh said that the return to the gold standard is possible. Maybe not immediately but a return to the bread and wood system is uh is possible in our lifetimes. The bread andwood system as you know um ended in the 70s. It's only about 80 years old now if you factor in the start date and you're tracking 80 to 100year debt cycles. So maybe are we seeing the end of our current financial system? >> I think that is absolutely something that we have to give some consideration to. These things are um slow. They're unpredictable. But we absolutely are at the end of an 80year uh um cycle. And it's what Neil How's talking about in the fourth turning if you're familiar with his work at all. We certainly see a generational gap, right? The unemployment in the youth right now is much higher than the unemployment for the boomers. There's generational uh warfare going on right now. And um all of those things contribute to an intense time of um of swirling forces that feel very chaotic and ultimately um will lead to change one way or another. >> My final question for you, well actually it was so much of a question as a request. Can you please show us using some of the tools and indicators that you have in your in your toolbox um how Bitcoin is going to look? Uh maybe you can apply cycles analysis to Bitcoin. A lot of our viewers are >> interested here. All right. So, uh let me just start from scratch here. So, I'm going to start out looking at weekly data on Bitcoin going back to uh 2014. That's as long as it's available from Yahoo Finance. So, uh, if we look here, we see, uh, so we've got 600 or about 700 weeks of data here. That's not really a lot for doing a cycles analysis, but if we look at, for example, one of the most prominent cycles on the chart here is this 84 week cycle. And we're seeing it at a topping phase of the cycle right now. And again down here we see this is a proprietary uh momentum indicator. It's called the cyclic RSI. And we can see that we have a series of descending uh tops in momentum while we have an ascending series of prices. So this is a classic momentum divergence situation and um and the cycle is uh just past its peak. So on a weekly basis, uh, I'd say that's of concern. And this 84 week, then there's this 163 week, which you'll notice is two times 84. So there's often a harmonic relationship in cycles. And both of them together are suggestive of risk for a significant correction in Bitcoin. And if I drill down to the daily cycles in Bitcoin, again, let me just start this analysis from scratch now. So, this is kind of a fractal approach to cycles analysis. Um, now we're looking at daily data and we're going back uh just to um June of 2022 or so here. Uh we see a quite prominent cycle here at 58 days suggesting possibly a little more upside and this 209day cycle is also quite prominent. Uh you know so on the daily charts I think there's room for a little more upside in Bitcoin. maybe one last new high. But uh longer term over the next uh year to two years, I think that uh together with the riskoff concerns in the economy period that Bitcoin from the cycles perspective also is vulnerable to um uh some cycle headwinds. At the same time, you know, I do think that Bitcoin is enjoying some of the same benefits that gold is enjoying. I think that Bitcoin and gold together actually are quite a nice combination and they are relatively uncorrelated to each other. So, you get some good diversification between them. But I think when as people are seriously asking themselves, is the US dollar going to be the reserve currency of the world? then both gold and bitcoin benefit from being a hedge against uh the worst case scenario there. >> Excellent. Thank you very much, Richard. Where can we find your work? >> We our most uh active space is YouTube at Cycles TV FSCTV and you can follow us and sign up for our uh newsletter at cycles.org. We are not for-p profofit. Our newsletter is about once a month, but we have several shows each week on YouTube, especially on Monday and Tuesday. My partner Lars Vontinean and myself lead that along with some other regular contributors. So, that's the best place to keep in touch with our work. >> And what I like about your channel is that it's not just about market cycles. You talked about the cycles of nature and life. So, get a good >> some really interesting interviews. Uh marine permaculture was an interesting one recently and uh we also have done some climate research interviews and um uh lots more to come. >> This is fascinating. Yeah, you're talking about the science behind societal cycles, DNA. Very interesting stuff. All right. Well, we'll we'll put the links down below, so make sure to follow Cycles TV and Richard's work there. Thank you again for coming on the show. We'll speak to you again soon. Take care for now. >> Thank you, David. Thank you for watching and don't forget to like and subscribe.