Investing like its 1977

Gordon Scott  |

“If Obama wins the election, the market will go all to hell.” Have you heard that one? How about this zinger, “The U.S. is technically bankrupt and faces an even bigger crisis than 2008.” Have you heard that? Here’s another: “The price of gold will go to $3,000 an ounce as the Fed is forced to do QEx.” Or how about my personal favorite, “The U.S. Midwest farmers are about to become the richest people in the world as inflation skyrockets.” There is no shortage of dire predictions of what lies around the corner for this market. Are any or all of them right? Perhaps they could be, but I’m not planning on it.

If you have followed my articles on over the past year or so, you will notice that I have been a bit inactive for a while. There is a reason for that. I’ve been researching a few things to help the people I work with, individual traders and investors, be prepared for what is coming.

That’s right, I’ve got my own dire prediction to add to the mix. But I must warn you, it’s not going to be like any you have ever heard before. I think it is more terrifying for many investors than any other kind of prediction—especially for those in the financial profession. I say it is terrifying not because it represents the collapse of the banking system or the takeover of the free world or the apogee of peak oil or the beginning of World War III. I suppose any one of those things could happen and I may still feel to stick to this prediction.

The most terrifying prediction yet

Are you ready, here it is: 2013, and perhaps some of 2014, may be the most BORING market conditions you are likely to experience ever in your lifetime! There it is. BORINGNESS! That’s what is likely on the way. You probably don’t realize what that means, but once you do, it could make you quake in your boots.

About this point of my article, assuming you are kindly giving me the benefit of the doubt and allowing that I could be right, you might have two questions stirring in your mind: first, what does he mean by boring; and second, why is that so terrifying?

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Let me answer the first question for you very simply. I believe we may be in for a market that is similar in character to 1977. Certainly we could be in for some replay of the market conditions of the 1930s, but I am more inclined to think this market has characteristics more similar to other periods in history, the most recent being the late 1970s.

Check out what that market looked like in an 20-month stretch that included 1977 and some of 1978. See if you can imagine what a market that looks like this would feel like right now.

S&P 500 – Weekly chart, late 1976 to early 1978.

Just this past year the market fell eleven percent in the sixty days leading up to June 1st. Sixty days. Imagine that same moving slowing down in an agonizing grind that lasts not two months, but twelve. As you can see from this chart that’s the kind of market it was back then, and conditions are shaping up to bring a back the conditions of that year.

Not sick of the market yet?

Think about your average baby-boomer investor trying to juice their retirement nest egg just before they cash out of the work force for good. How do you think they would feel about such lackluster performance? They’d throw their hands up in disgust, wouldn’t they? They’d say they were done with the stock market and back off. That translates into lower volume, lower volatility in the markets, and generally speaking, less demand for the skills of those working in the still-overstaffed financial services industry.

This isn’t a doomsday scenario for the average investor, but it could be a stark warning for financial professionals and all connected to that sector. The warning is this: you’d better get prepared for how to make a living in a boring market or you’ll face a terrifying reality—career change.

But that doesn’t mean that the average investor or trader has no hope. FAR FROM IT! I believe that the retail investor and trader have more opportunity than ever before, and if properly prepared they could do quite well. Over the coming weeks I intend to produce some articles to give you ideas of what those opportunities might look like, and some clues for how to take advantage of them.

-Gordon Scott, CMT

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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