Benjamin Franklin was purported to have said “that which hurts, also instructs.” Yet, society, as a whole, has a very short memory. Thus, lessons learned through the pain of generations gone by often are quickly forgotten.
We have very few people left worldwide who actually lived through the Great Depression. While I have been told many stories by my grandparents of what it was like to live through the 1930’s and 1940’s, I clearly do not have first-hand experience. Yet, I would assume that I still have a better understanding of that time period than most of the 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, as a whole, 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.
As 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 that 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: https://www.socionomics.net/
But, 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 upon in this article is R. N. 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 upon my analysis (along with Elliott’s himself), the market seems to be on a path of completing a multi-generational 3rd wave sometime in the mid-2020’s. 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.
Currently, 90 years later, we are approaching the completion of wave (III) of that same wave degree. That means that the impending wave (IV) regressive structure, which seems to be scheduled to begin in the mid-2020’s, will likely usher in an economic period of the same degree as the Great Depression. Clearly, that will not likely bode well for our economy.
To put this type of predictive analysis into historical perspective, allow me to present you with the following prediction made by Ralph Nelson Elliott in August of 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 that 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 financials markets which is not linear in nature. This allows us to understand that once this long-term bull market runs its course in the mid 2020’s, it will usher in a regressive period which will likely destroy much of the wealth that was accumulated during the preceding 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 the Great Recession and for several years thereafter, we have seen governments worldwide (even those based upon capitalism) willing to adopt socialistic policies during periods of great economic risk.
My personal expectation, based upon many of the charts I analyze and based upon the modern political trend, 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 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 I expect in the future will be of one degree greater than the Great Recession.
Moreover, I am expecting a rising yield deflation, again, similar to what we experienced during the Greek debt cycle, which is not likely what most expect. But, how often do markets telegraph their next major cycle to the great majority of investors? Rather, markets often provide the masses with what is least expected. But, this is simply my opinion based upon 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 back in 1941. In fact, my read on the metals complex is that it is about to enter a 50+ year bull market.
Before you present me with a personalized tin-foil hat, those that have read my analysis over the years would know that I am often a very measured and realistic analyst. So, I am not known as the traditional “doomsday” type.
In fact, I have been quite bullish the stock market for years, despite many taking me to task for remaining steadfastly bullish in the face of negative fundamentals such as Brexit, Frexit, Grexit, rise in interest rates, cessation of QE, terrorist attacks, Crimea, Trump, Syrian missile attack, North Korea, record hurricane damage in Houston, Florida, and Puerto Rico, quantitative tightening, trade wars, etc. And, as many were looking for a crash back in 2016, we were pounding the table that the market was setting up to run strongly to 2600+, with potential to exceed 3000 before this long-term bull market beginning in 2009 would conclude, no matter who won the election in 2016.
Back in 2011, when I called for the top in the gold market within $6 of the high struck at the time, many thought me to be quite 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 DXY back in 2011 when the Fed was throwing many rounds of QE 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 was about to break down hard below $1,000.
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 in order to be able to maintain on the correct side of the market the great majority 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.”
See long-term chart on the Dow.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.