Benjamin Franklin was purported to have said: “That which hurts, also instructs.”
Yet, society as a whole has a very short memory. Lessons learned through the pain of past generations often are quickly forgotten.
There are few people left in the world who lived through the Great Depression. While I have been told many stories by my grandparents of what it was like to live through the 1930s, I clearly do not have first-hand experience. Yet I would assume that I still have a better understanding of that period than most people reading my words today.
To add to Franklin’s wisdom, George Santayana was quoted as saying that “those who do not learn from history are doomed to repeat it.”
So if we were to synthesize Franklin’s and Santayana’s wisdom, it would suggest that when society no longer remembers the pain experienced during the times of the Great Depression, it certainly opens the door to repeating it. And I think we are approaching such a period of time in the coming decade. Let me explain.
Elliott Wave theory
As an Elliott Wave adherent — or an Elliottician — I understand that financial markets provide us with a representation of the overall mood or psychology of the masses. Moreover, we also understand that markets are fractal in nature. That means they are variably self-similar at different degrees of trend. For those who want a more detailed explanation of what this means, I suggest you read this article written by Robert Prechter, who is today’s foremost expert on this topic.
I would imagine that the simplest way to explain this concept is by saying that while history may not repeat in the exact same fashion, it will certainly rhyme.
What I intend to focus on in this article is Elliott Wave founder Ralph Nelson Elliott’s concept of a 5-wave structure, which provides guidance as to the ebb and flow of our markets, thereby providing insight into the ebb and flow of society as a whole. This also provides insight into what the future may hold.
Most specifically, I want to focus upon waves 2 and 4 within the 5-wave structure, which are the corrective and regressive segments of the 5-wave structure.
Based on my analysis (along with Elliott’s himself), the U.S. stock market seems to be on a path of completing a multi-generational 3rd wave sometime in the mid-2020s. This wave began at the conclusion of wave (II) in 1932, and has progressed for almost 90 years. But take note that wave (II) ushered in the Great Depression.
Today, 90 years later, we are approaching the completion of wave (III) of that same wave degree. That means the impending wave (IV) regressive structure, which may begin in the mid- 2020s, will likely usher in an economic period of the same degree as the Great Depression.
To put this type of analysis into historical perspective, allow me to present you with the following prediction made by Elliott in August 1941:
“[1941] should mark the final correction of the 13-year pattern of defeatism. This termination will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle (V) is not expected to culminate until about 2012.”
For those of you who do not understand this quote, Elliott was predicting the start of a 70-year bull market in the face of World War II raging around him. Quite an amazing prediction, no?
While it seems Elliott may have been off by about a decade, this still stands as the most amazing market prediction in modern history.
Elliott presented us with an understanding of financial markets, which are not linear in nature. This enables us to understand that once this long-term bull market runs its course in the mid-2020s, it will usher in a regressive period that will likely destroy much of the wealth that was accumulated during the preceding bull market.
Economic and political risk — and a new bull market
History has shown that when the economy moves into extremes, so does society. We have seen how the extreme conditions in Europe after the Great Depression led to Nazism and fascism. More recently, during and since the Great Recession we have seen governments worldwide (even those based on capitalism) willing to adopt socialistic policies during periods of great economic risk.
My personal expectation, based on many of the charts I analyze and modern political trends, is that this regressive period will mirror what was experienced by Europe during the Greek debt cycle, but to a much more extreme degree. Therefore, my expectation is that even more extreme socialistic policies will likely be adopted, wherein the U.S. government will seem to have no choice other than to take over various segments of private industry. We have seen the initial stages of this potential during the Great Recession, and the economic downturn that I expect will be of one degree greater than the Great Recession.
Moreover, I am expecting a rising-yield deflation. That’s similar to what we experienced during the Greek debt cycle. How often do markets telegraph their next major cycle to investors? Rather, markets often provide the masses with what is least expected. But this is simply my opinion based on my current readings of the charts I analyze.
Yet, what I also see quite interestingly is that the metals complex seems to be setting up in a similar manner to what Elliott saw in the Dow Jones Industrial Average
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back in 1941. In fact, my read on the metals complex is that it is about to enter a 50-plus-year bull market.
No doom monger
Before you present me with a personalized tin-foil hat, those who have read my analysis over the years would know that I am often a measured and realistic analyst. So I am not known as the traditional “doomsday” type.
In fact, I have been bullish on the stock market for years in the face of negative fundamentals, such as Brexit, Frexit, Grexit, rising interest rates, the end of quantitative easing (QE), terrorist attacks, Crimea, Trump, the Syrian missile attack, North Korea, record hurricane damage in Houston, Florida and Puerto Rico, quantitative tightening (QT), trade wars, etc. And as many were looking for a crash back in 2016, we were pounding the table that the market, as represented by the S&P 500 Index
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was setting up to run strongly to 2,600-plus points, with the potential to exceed 3,000 before this long-term bull market beginning in 2009 would conclude, no matter who won the U.S. presidential election in 2016.
In 2011, when I called for the top in the gold market within $6 of the high struck at the time, many thought I was crazy, with some even suggesting that I am throwing away my career as an analyst with such a market call. I also called for a multi-year rally in the U.S. Dollar Index
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in 2011 when the Federal Reserve was throwing many rounds of quantitative easing at it, and many simply wrote me off as someone who really does not understand the market. And when I suggested investors get back into the gold market at the end of 2015, most again wrote me off as they were certain that gold
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was about to fall below $1,000 an ounce.
So let me reiterate that I am neither bull nor bear. Rather, I am most interested in viewing our financial markets through an honest and objective lens to be able to stay on the right side of the market most of the time.
While you may read this article as being in the same vein as all the doomsday predictions that are paraded before you on an almost daily basis, I can assure you that this is not akin to those perspectives. So unlike those who try to scare you into buying something, my goal is to prepare you for what I honestly believe is “something wicked this way comes.”
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex, and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.
Source : MTV
