A very happy New Year to all of you. I can’t believe it’s been seven and a half years doing this column. Time flies! Here’s an abbreviated update for the diehards who are not on vacation and will be at the switch this week. The Fed handed you a Christmas present and traders took full advantage as the Nasdaq rose well beyond the 4100 Fibonacci level. Now we are looking at the secondary high in July 2000 at 4289. The index has only been above this level once in history.
I have that chart for you below. We are looking at the secondary high from April 1930. That was Herbert Hoover’s Happy Days Are Here Again rally. The following is an excerpt from our Short Term Updates, and those of you who’ve never subscribed can see what you are missing. Not only do we stay on top of the near term action, we are stock market historians as well.
What is similar about these charts? From the 1932 and 2002 bottoms, the next rally took five years, and that’s where the similarity ends. After five years in 1937, they never had a crisis that went to a new low, which happened in the Dow and SPX this time around. But those of you who have studied this period know the 1937-38 bear was called Great Depression II. It was brutal and sentiment was worse.
Part of the problem was they had a guy named Hitler threatening all of Europe. That 1937-42 period, which was a brutal bear, produced a World War. That’s the difference. Here instead of a World War we had the financial crisis which we can say was worse than the Internet bear. But picking up the pieces, the acceleration was much quicker to retest the secondary high of 1930, which is the point of this exercise.
Part of the reason for that is they understand stimulus today much better than in the 1940s. In those days, stimulus was a war. I’m not kidding about that. If you study John Loftus’ work, you’ll see all the back room dirty business that developed between the Americans, Saudis and Nazis. Then of course you had Hitler who sold German industry on the idea that the cure for inflation was concentration camps. I’m not kidding about this either. Hitler had a slightly different view of stimulus than we do. He returned the Reich to full employment by kicking the Jews out of the economy. The German people were also taxed for an autobahn that was never finished, and the money was never returned. We obviously had to fight our enemies in this war, but there was no such thing as stimulating an economy in those days the way Bernanke did it now.
Of course, in a Time magazine article in 1942, the market bottomed near a point in history when a report came out that Hitler maxed out his industrial production just as the United States was about 30%-35% of capacity. That’s really how we won World War II. Why are we talking about this today? I’m trying to give you a perspective on how we could possibly be near the secondary high of the Nasdaq 13 years out when it took the Dow 25 years to get there. Just remember 1942 at 10 years off the bottom was a retest of the bottom and 1945 at 13 years out was the atom bomb.
Next page: What we can expect this week...