The Economic Wave Theory’s Cyclic Model

A Synthesis of Ten Years of Research on Economic Cycles

Following a decade of research into economic cycles, Cyclic Vibrations Consultancy (CVC), under the leadership of Ahmed Farghaly, developed the Economic Wave Theory. This theory proposes to explain price behavior based on repetitive economic cycles. To develop a cyclic model that builds upon the work of J.M. Hurst, CVC backtested historical data dating back to approximately 1000 AD.

It’s important to note that researchers had detailed waves longer than 18 months before Hurst. For example, Joseph Kitchin spoke of a 40- to 60-month operative economic cycle. Consequently, CVC attributes the 54-month cycle in its model to him and refers to it as the Kitchin cycle. The economic waves proceed in a structured hierarchy: the wave succeeding the Kitchin is the Juglar wave, discovered by Clement Juglar. It’s listed in Hurst’s model as the 9-year cycle and aligns with Martin Armstrong’s 8.6-year pi cycle. Next is the Kuznets swing, discovered by Simon Kuznets, which is the 18-year price wave in Hurst’s model.

Moving up, the infamous Kondratieff swing is the next larger economic wave. CVC added this wave to Hurst’s nominal cyclic model (hereafter, the modified nominal cyclic model) as the 54-year cycle, which is also Martin Armstrong’s 51.6-year cycle. The Hegemonic social wave follows in the modified model. Joshua Goldstein first identified this wave in his Ph.D. thesis, relating the long wave to military activity (war). CVC notes that Goldstein was not steeped in cycle theory, which resulted in an incomplete, though close, depiction of the wave.

CVC asserts that the Hegemonic social wave is the second harmonic of a larger wave, which they termed the Enoch wave (324-year wave). This wave corresponds to Martin Armstrong’s 309.6-year cycle. The largest social wave identified so far is the Methuselah wave, which is three times the length of the Enoch wave (making the Enoch wave the third harmonic). It is listed as the 972-year wave in the modified model.

Figure 1 presents the modified nominal cyclic model as defined by Cyclic Vibrations Consultancy.

Figure 1

The Kuznets Economic Wave

The Kuznets swing is a widely accepted economic cycle in both the investing and academic communities. This wave appears three times within a single Kondratieff cycle. We are currently in the second Kuznets cycle (often termed the summer season) of the current Kondratieff cycle, a phase that began in 2020. Historical analysis suggests that following the end of the current 18-month cycle (forecast for the first quarter of 2026), we should anticipate a significant advance in commodities, mirroring the price surge observed between December 2008 and April 2011. Given that the last known trough of the Kuznets swing was in 2020, the current upward phase of this economic wave is 5.33 years in duration.

Figure 2

The Kondratieff Economic Wave

The presence of the Kondratieff economic wave is broadly accepted across the economics and political science communities. Although some doubt has been cast on its existence due to its “abnormal behavior” following the 1919 peak (World War I), this anomaly is generally attributed to World War II. The fundamental economic impact of WWII elevated commodity prices, countering the expected bear market trend that should have persisted until around 1950.

This fundamental factor led to what J.M. Hurst termed a “straddled trough” in 1949. (Readers interested in a detailed explanation of straddled troughs should consult Hurst’s cycles course.) Projecting the time period of the Kondratieff cycle forward from the 1896 trough to the 1949 low results in a duration very close to the terminus of the cycle that began in 1949 (2003). This calculation strongly supports using the 1949 low as the end of the preceding Kondratieff wave, even though this trough was higher than expected due to the external influence of WWII. The last known trough of the Kondratieff wave occurred in 2003, meaning the current phase of this economic wave has been running for 22 years.

Figure 3

The Hegemonic (Jared) Economic Wave

After studying Joshua Goldstein’s work, CVC sought to confirm the existence of the hegemonic economic wave using J.M. Hurst’s cyclic analysis techniques. As illustrated in Figure 4, a valid trend line connecting two consecutive Kondratieff wave troughs is visible. CVC posits that the orthodox trough in 1792 marks the beginning of a significantly large cycle, considering that equities had been declining since 1720.

The downside break of the Kondratieff valid trend line during the Great Depression suggests a peak in the next larger cycle. This break occurred within the third Kondratieff cycle following the 1792 trough, and a new cycle began after its terminus, leading to the substantial price increases observed up to the present day. This led CVC to hypothesize that the Kondratieff wave is the third harmonic of the next larger cycle, which Goldstein originally termed the hegemonic wave. The latest known trough for this economic wave was in 1949, placing the current phase of this wave at 76.51 years.

Figure 4

The Enoch Economic Wave

As shown in Figure 5, the hegemonic economic wave clearly functions as the second harmonic of the next larger cycle, which CVC has designated the Enoch wave. This wave is listed in the modified nominal cyclic model as the 324-year cycle, corresponding to the 309.6-year cycle previously discussed by Martin Armstrong. The key to accurate market modeling and forecasting lies in identifying our current position within the largest possible cycle that the available data permits. This enables projections to be formed by using similar cyclical circumstances as a guide, adjusted for the principle of variation (a topic to be discussed in a future article). The latest known trough of this economic wave was also in 1949, meaning the current phase of this wave is 76.51 years.

Figure 5

The Methuselah Economic Wave

CVC suspected the Enoch economic wave was the third harmonic of the next larger wave due to the prolonged correction in commodity prices following the collapse of the Continental Dollar (see Figure 7). This commodity correction spanned 168 years, which is close to three times the mean correction time of the Enoch economic wave (59.55 years), as detailed in Figure 6. The correction in equities was even longer, lasting 229 years according to UK stock returns data, which dates back to the late 17th century. Furthermore, the perceived similarity between the current environment and the historical context of the Crusades—a time corresponding to the Methuselah wave’s projected position—lends additional support to its presence. Due to a lack of sufficient historical data, CVC did not confirm the presence of this wave using Hurst’s strict techniques. However, the evidence presented above was deemed sufficient to list the Methuselah wave in the modified nominal cyclic model as the 972-year wave. Its latest known trough also occurred in 1949, placing its current phase at 76.51 years.

Figure 6

Figure 7

Conclusion

This article has presented the modified nominal cyclic model utilized in the application of the Economic Wave Theory (EWT). In forthcoming articles, we will detail how CVC leverages knowledge of its current position within various economic waves to inform trading and investment strategies.

A crucial observation is that these large economic waves are universal, meaning they initiate and conclude at approximately the same time across all global markets. Accurately determining our position within these cycles offers a glimpse into the future economic and social environment, with larger cycles providing a greater degree of historical similarity. This knowledge allows analysts to determine which economies benefited most during the historical analogue to identify likely future beneficiaries. This process extends to pinpointing which sectors within those winning economies, and subsequently which companies within those sectors, are poised for the greatest advantage. This methodology guides portfolio construction at CVC, supplemented by diversification to mitigate risks associated with low correlation between the analogue period and the future.

The Economic Wave Theory has proven highly accurate in our historical experience since 2008. Utilizing EWT, CVC successfully called the 2019 high in equities, the COVID-19 price low and subsequent rise in both equities and commodities, the decline of the US Dollar, and the rise in gold and silver prices, among other forecasts. This methodology is, by far, the most accurate we have encountered. We look forward to discussing its application in much greater detail in future publications. Stay tuned.

Ahmed Farghaly

Founder & CEO of Cyclic Vibrations Consultancy