This Forecaster Sees a Full-On Depression

In the fall of 2007, Ian Gordon of Vancouver, B.C.-based Bolder Investment Partners published a 31-page article on the company's Web site explaining how an "explosion of debt" made possible by a "worldwide fiat monetary system" will decimate stocks and eventually the U.S. dollar. With the S&P 500 down 37% in the last year, Mr. Gordon's contrarian scenario is playing out as he expected. I recently spoke with Mr. Gordon, an expert on the Kondratieff wave, to hear his views on the U.S. economy, China and gold.

RealMoney: Please tell RealMoney readers about the Kondratieff cycle. How did you get interested in this theory?

Gordon: I love history, and that's what my degree is in. In 1983 I started a subscription to a monthly newsletter written by Donald Hoppe, which was called The Kondratieff Wave Analyst. It drew many parallels from previous Kondratieff cycles. Mr. Hoppe ceased publication in 1993, but I retained all the copies that I received and draw from them extensively in my interpretation of the Kondratieff cycle, which I periodically publicize on my Web site, The Longwave Analyst.

Nicolai Kondratieff [1892-1938] , a Russian economist, theorized that economic cycles in a capitalist system last about 60 years. Capitalist economies grow in the first 30 years of the cycle, plateau in the next 15 years, and then collapse into a depression in the last 15 years.

Last year you said a Kondratieff winter "is now under way in earnest and nothing can stop it. The ensuing credit contraction will be devastating ... it will result in a destructive and frightening deflationary depression." What factor or factors told you we were "in winter"?

Spring in the present Kondratieff cycle started in 1949 and ended in 1966. Summer is when the economy achieves its fruition. Summer ended between 1980 and 1982. Autumn is the "feel good" period; it's when we have the biggest bull markets in stocks, bonds and real estate. Autumn ended in 2000 with the stock market peak in that year, just as the previous Kondratieff autumn ended with the Roaring Twenties stock market peak in September 1929. Winter is the season in which the economy dies, as debt is cleansed from the system.

Although winter began with the stock market peak in 2000, the first seven years were mild, because former Fed chair Alan Greenspan lowered interest rates to 1% and flooded the banks with money. All this money had to go somewhere; it went into real estate and back into stocks. And it added horrifically to the already enormous U.S. debt burden. Debt in the U.S. increased by 50% between 2000 and 2007.

I knew the jig was up after those Bear Stearns funds failed in July 2007, because they were invested in subprime debt, and this was a signal the Kondratieff winter had arrived, because it was the sign that the enormous debt bubble was bursting. This is what happens in the Kondratieff winter.

---

Hewitt Heiserman conceived the Earnings Power Chart and the Earnings Power Staircase. A graduate of Kenyon College with distinction in history, Heiserman is a member of the Boston Security Analyst Society and the CFA Institute. He also authored It's Earnings That Count. For additional information, please visit Earnings Power.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Heiserman appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.