Weekend Oct 11, 20115
A Forty Year Cycle Anniversary
This week is the 50th anniversary of a event. That was the week the Ramsey Lewis Trio debuted their version of The In Crowd at the Bohemian Caverns in Washington DC. The live recording shot to the top of the charts right behind the Beatles Help! A waitress overheard the trio grasping for the right song and suggested Dobie Gray’s successful recording of the tune. Listening on the juke box, Lewis quickly envisioned how the arrangement would sound. They debuted it that weekend, and the Lewis trio never looked back.
But, we are here today to warn of another anniversary event. That would be the start of the 50% meltdown in the markets from 1973-74.
The Dow Jones had returned to its 1966 1,000 + level by January, 1973. From there it fell 20% into August of 1973. Then the market rebounded into October. But that was the last kiss good-bye. The market then reversed down. It lost 50% from its January, 1973 top of 1051 closing at 577 during December, 1974.
Since December, 1974 was a low, the 40 year anniversary was high in the Transports by November, 2014. The Transports typically lead a market turn. Since then all the Indexes have turned down. China’s Shanghai for example has lost 44% just since June, 2015.
And with history as a guide, markets in the US have collapsed about 20% this year, just as they did in 1973. And now they have rallied back with the DOW recording a 1,500 point rally since August 24. But is that all there is? If the analogy continues the markets will hold up into next week and then turn down again.
Are there other similarities?
The Yom Kippur War (1973 Arab-Israeli War) began in October 6, 1973. Then Egypt and Syria attacked Israel on the holiest day of Judaism. Now, Russia is aiding Syria’s Assad in a bid to keep the latter in power. And the dates are a near perfect 40-year correlation. Putin is daring NATO to do anything to stop him in a parallel to his Ukraine invasion.
Then Richard Nixon went for popular to unpopular as the Watergate scandal unfolded. By 1974 Nixon would resign. Now the Speaker of the House has already resigned. The former Secretary of State (who was fired from the Watergate Panel at the time, how is that for irony) cannot shake an e-mail scandal. Political nobodies top the polls for both parties as evidence of a severe negative mood towards politicians.
Then the country was subject to an oil embargo resulting in gasoline rationing. Now, alternation is again in evidence. Too much oil production has sent prices lower resulting in massive job losses and panic in oil producing countries. Bankruptcies and takeovers are now the norm in what was an over confident US energy industry just a year ago.
Brazil was one of the red hot BRIC countries not long ago. Now there are rumors of impeachment proceedings against Pre3sident Rousseff amid a growing Petrobas scandal.
China’s shaky banking system and questionable accounting system along with a failed stock market simulation plan, is sending worry through the rim of countries that have supplied Chinese growth.
An emissions cheating plot at VW now threatens jobs in Germany, yes and even Tennessee, as Europe struggles to handle a flood of immigrants.
In 1973 inflation and high interest rates were the problem. Again in alternation, now deflation and low interest rates (no one wants to invest) are the problem. In both cases the FED gropes for a solution. Now what the FED thought was a growing economy ready for a rate hike, instead cannot even handle a quarter point increase; Treasuries are being auctioned at zero interest!
Our point is that there are more than a few anecdotal similarities to 1973-74. No one saw it coming in 1973 just as the FED did not and cannot see the weakness all around us now.
Meanwhile the price of oil has finally risen near its former $50 level. We originally thought it would hit $55 and it may, given the heightened tensions in the Mid East. But that too could be a fleeting moment before a final drop this fall.
So, our bottom line is that now looks much like 1973. And that ended badly. We suggest readers take defensive action to protect their savings.
Professor Elam 