KVM LogoKarfali-VAR Model

    Pattern Detection: Investment Insights from Economic Cycles

    Identify recurring patterns across economic cycles from 1954 to 2025 that support the 9-year cycle hypothesis and enhance your investment strategy.

    GDP Growth Patterns

    Key Pattern Observations

    Years 1-3: Strong Growth

    The early years of each cycle typically show robust economic growth as recovery takes hold.

    Years 4-6: Moderation

    Mid-cycle years show moderating growth as initial recovery momentum fades.

    Years 7-9: Weakening

    Growth weakens significantly in the final years, with Year 9 often showing near-zero growth or recession.

    GDP growth peaks in Years 1-3 at around 3.4%, moderates in Years 4-6 to around 2.4%, and weakens in Years 7-9, reaching near-zero in Year 9.

    ISM Manufacturing PMI Patterns

    ISM PMI Pattern Observations

    Years 1-3: Strong Manufacturing

    Early cycle years show strong manufacturing expansion with readings well above 50, peaking in Year 3 (55.5) as recovery momentum reaches its height.

    Years 4-7: Moderating Expansion

    Manufacturing activity remains expansionary but gradually moderates as the cycle progresses. The index typically stays above the 50 threshold indicating expansion.

    Years 8-9: Contraction

    The index typically falls below the critical 50 level in years 8-9, signaling manufacturing contraction that often precedes broader economic slowdowns.

    Note: Values above 50 indicate manufacturing expansion; below 50 indicate contraction. Historical analysis shows this indicator is typically a leading signal for economic cycle transitions.

    Inflation & Interest Rate Patterns

    Key Pattern Observations

    Years 1-3: Low Inflation

    Inflation starts low in early cycle years, often following economic slack from previous cycle end.

    Years 4-7: Rising Inflation

    Inflation builds steadily during mid-cycle as economy approaches full capacity.

    Year 8: Peak Inflation

    Inflation typically peaks in Year 8, often triggering aggressive monetary policy responses.

    Unemployment Patterns

    Key Pattern Observations

    Years 1-3: Falling Unemployment

    Unemployment falls steadily in early cycle years as recovery takes hold.

    Years 5-6: Unemployment Low

    Unemployment reaches its lowest point in mid-cycle, often approaching or reaching full employment.

    Years 7-9: Rising Unemployment

    Unemployment begins rising in later years, with a sharp increase in Year 9 as recession often occurs.

    Government Debt to GDP Patterns

    Government Debt Pattern Observations

    Years 1-3: Early Cycle Debt Rise

    Government debt tends to rise in early cycle years as governments often seek to stimulate economic growth.

    Years 4-6: Stabilization and Slight Decline

    During mid-cycle, government debt tends to stabilize and then gradually decline as tax revenues improve due to economic growth.

    Years 7-9: Renewed Increase

    In the later years of the cycle, government debt rises again as economic growth slows and stimulus spending increases to counter the downturn.

    Pattern Implications for Karfali-VAR Model

    These recurring patterns across multiple cycles support the Karfali-VAR model's premise that economic cycles follow predictable 9-year patterns. These patterns are not arbitrary but are statistically significant across multiple variables.

    Model Strength

    The consistency of these patterns across multiple variables, now including Government Debt to GDP, further supports the statistical validity of the 9-year cycle hypothesis and enhances the model's predictive capability.

    Model Limitation

    External shocks can disrupt these patterns temporarily, explaining occasional forecast misses, but the system tends to return to the underlying cycle pattern.

    Addressing the "Arbitrary Cycles" Criticism

    The consistent patterns shown across multiple variables and multiple cycles demonstrate that the 9-year cycle structure is not arbitrary but reflects genuine economic rhythms that investors and institutions can leverage for strategic planning.

    Evidence Against Arbitrariness

    • Consistent GDP pattern across eight complete cycles
    • Similar inflation trajectory pattern in each cycle
    • Unemployment bottoming mid-cycle in most cycles
    • Statistical consistency in timing of major financial crises

    Pattern-Based Validation

    The statistical significance of these patterns is confirmed through multiple methodologies:

    • Spectral analysis
    • Augmented Dickey-Fuller tests
    • Granger causality tests
    • Out-of-sample forecast accuracy