Professional Documents
Culture Documents
Long Long Stock Market View 6 Sep 10
Long Long Stock Market View 6 Sep 10
Long Long Stock Market View 6 Sep 10
With this as his longer term model, Neely, after the 1987 crash, reached some VERY bullish conclusions for the stock
market well into 2060. Using this longer term model, I get the wave count on the next page…..
The implications of this longer term count is that we’re in a Cycle Fourth Wave that
MUST last until at least 2028. Generally speaking, fourth waves should last as long as
the wave-3 which precedes them--in this case, it was an 28 year third. This suggests
the highs and lows established in the last decade will hold for the next decade as we
experience more whipsaw congestion. The wave <IV> should not last longer than 2000
162% of Wave <III>, therefore it will be over by 2045. It’s interesting to note that the < III > -B-
Baby Boom generation (born between 1946 and 1964) should be mostly “passed -V- -D-
on” during the time period of 2028 to 2045. This seems like an obvious
“inflection point” for the macro-economy.
-A-
-C- -E-
< IV >
- III - - IV - 2028-2045
1966
<I> -I-
-V- -X- This period was congestive/correcitve. The Wave
- II - -V- did not start until the beginning of 1995.
(X)
- III - -Y-
1929
(Y) -W- < II >
<X> - IV -
(W) 1982
-I-
-D-
-B-
- II -
-E-
<Y>
-C-
II
The Supercyle Wave II, which began in 1860, concluded
in 1949. It makes sense that the United States begins
-A-
its SuperCycle Wave III as it establishes itself as a
“Super Power” after World War II.
III
The Cycle Wave < I > was a 600% advance across 17 years. If <V>
we get equality between Waves < I > and < V >, it would imply a
very strong move once Wave < IV > concludes. Dow 50,000?
2000
< III >
-V- -B-
-D-
-A-
-C-
-E-
- III - < IV >
- IV -
2028 - 2045
1966
<I> -I-
-V- -X-
- II -
(X)
- III - -Y-
(Y) -W- < II >
(W) - IV - 1982
-I-
- II -
II
1949
This is an interesting chart published by McClellan Financial Publications. They suggest the presence of a 60 year cycle in interest rates using this
compelling graph of High Grade Corp. Bond Yields. This 60 year cycle matches up nicely with the theories of Nikolai Kondratiev who discovered a 50-
60 year “long economic cycle.” The Kondratiev Wave theory is that capitalist systems undergo sinusoidal-like waves of prosperity, stagnation, and then
recession. It would make sense that corporate bond yields would undergo a similar long cycle.
The authors of this graph suggest the end of the lower rate cycle--it’s difficult to argue against that point using this data. However, it’s worth noting that
the “bottoming process” can take several years. For instance, we may not see a “meaningful turn” in rates until 2015-2017. What’s very interesting
about this idea, in light of the wave count on the previous pages, is that we will experience a meaning inflection point in corporate yields during the midst
of a Cycle Wave < IV >. The Rorschach test for readers is this: Would a rising yield environment for the next 15-30 years be bearish or bullish
for the Stock Market? The answer, as is the case for many economic questions, is that “it all depends.” Are the higher interest rates in response to
greater economic activity or runaway inflationary pressures? The period between 1949 and 1982 (Cycle Wave 1&2 on previous slide) is instructive:
1949 to 1966 was a great time for the stock market (up 600%) and was also a period of rising Corp Bond Yields. On the other hand, the period between
1966 and 1982 was a horrible time for stocks as inflationary pressure wracked the economy with yields soaring.
-A-
-E-
-C-
< IV >
2028
1966
<I>
< II >
1982
This would be the “optimistic” wave forecast, which must be attributed to Glenn Neely. He
suggests that Wave <II> concluded in 1988 with another running X-wave (similar to 1830-1945 2035-2040
move). This would mean a Wave <III> that lasted only 18 years. This would mean that the Wave III
<IV> could take only 18 years and be done by 2018! <V>
2000
< III > -B-
-D-
-E-
-A-
-C- < IV >
2018
-X-
1966 -Y-
<I> < II >
1988
-W-
Using the rate cycle chart on Slide 4, this would be the one that suggests a ‘gradual’
bottoming in interest rates across the next several years, with economic activity
picking up significantly in 2018. The period between 2018 and 2035 might look a lot
like the 1949 - 1966 move. As was the case with the Wave < I > conclusion, the
Wave < V > might also finish with sky-rocketing interest rates and hyper-inflationary
II pressures. Essentially, the Supercycle Wave III of America would trace the arc
1949 of the Post World War II Baby Boom Generation.
<E>
<C>
1966 IV
-C- -E- <A>
<I> 2110
1929 -A- < IV >
<X> < II > 2018
- B -- D - 1988
1835 -E-
-C-
I -B-
-A- <Y>
II
1949
-C-
-A-
<W> Obviously, the main problem with these sorts of long dated counts is the accuracy of the
1860 data and how one estimates the path of “human progress” progress before there was good
record keeping and data. For instance, there was certainly economic activity in the United
States in the early 1600s. Was there a Wave I and II somewhere between 1600 and the
mid-1700s that couldn’t really be charted? Perhaps the 1835 high was Supercyle Wave III
1600-1760: Seeds of the and the 1949 low was the Wave IV. If that’s the case, the next wave higher into 2040-2050
American Wave are “planted” would be the “END” of the American “Impulse.”