We were vacationing at the beach with some friends a few years ago when I learned the truth about economics.  Sure, I’d had Micro and Macro and Monetarist Theory classes in college, but this lesson was something else entirely.  My friend Dane, who is one of the smartest people I know, was the co-instructor.  The other teacher was my own experience with nature.

The point of the lesson was simple: there is no escaping nature’s cycles.  For the past few decades, the public has been told that the stock market will never crash again.  In these modern times, there are too many safeguards built into the financial markets and overall economic ecosystem to allow that.  Bull!  Or, more appropriately, Bear!

Perhaps it was being at the beach that week and seeing the wind, the waves, and the tides in action:  all three forces operating with unimaginable power, just as they have for millenia.  But listening to Dane’s analysis of the world economic system–plus seeing nature’s powerful cycles in action right before my eyes–led to a resounding certainty:  we were on the verge of a major economic “event.”

As Dane explained, there were a lot of technical and fundamental analyses to back this up, but the real reason is simple: it’s all part of the cycle.  The stock market is the ultimate confidence game: literally, if investors are confident that there are good times ahead, stocks go up; but if the future isn’t so bright, the markets will go down.  And, on a particular cycle of about four generations (i.e., 80 years or so), certain cyclical conditions align that make a decline in the public’s mood a near certainty.  If the public ain’t happy, then ain’t nobody happy.

If we go back 80 years from today, it was October 9, 1929.  Although the roaring twenties were still roaring, there were plenty of dark clouds on the horizon and later that month…well, we know what happened.  By the way, about 10 years later there would be a war.  Roll back 160 years ago and it’s about 1850.  In 1850, the US was expanding rapidly and the economy seemed to have entered a never-ending growth stage.  As with 1929, 10 years later would see a devastating war nearly split the country politically and destroy half of it economically.  Flash another 80 years and you’re in the decade of the 1770’s and the American Revolution.

My point is that we’re due for a drop in public confidence and, considering the precarious position of the world economy in terms of debt, energy prices, debt, home mortgage problems, debt, corporate greed, and DEBT–it’s likely going to be a major adjustment.  Today the Dow Jones Industrials closed at its lowest value in over 5 years.  My prediction, and I hope I’m wrong, is that this is going to get worse before it gets better.

I’ve much more to say on this topic in future entries.