This shows a "Benner-Fibonacci" projection, we did back in 2016, which calls for a "Major Trough" in 2021. I found this inside an old copy of "Elliot Wave Principle", circa 1978, reprinted 1984, which I had on the bookshelf.
This projection was based on the Benner-Fibonacci analysis, contained in Frost and Prechter's "Elliot Wave Principle", and basically, I just took the books chart which covers 1954 to 1987, and projected the cycles forward to 2041. It caught the 2003 trough, but missed the 2009 "Housing/Financial Crisis" trough, and projects 2021 as a major trough - but of course missed the Covid-19 meltdown last year. These sorts of "long-wave" cycle analysis are not to be trusted as viable, rational predictions. But one cannot deny that market and business cycles do exist, and appear to occur regularly throughout market history. Our current period of massive government spending, and central-bank money-creation - yet without serious inflationary pressure being evident (yet), is certainly unusual, and we suspect represents an extreme situation. The recent wild swings in the market price valuations of what are clearly low-value stocks also seems to suggest we are nearing a "top". I know an old investor who has been successful, who remembers the 1960's, and commented that "at the end of a major market cycle, just before a downturn, the junk starts to move." And well, we are certainly seeing this. The "junk" is moving quite well now - and this cannot be denied either.
Our point here is that this is not just "Robinhood" and the "Reddit Rally" at work. This kind of market-action was absolutely evident at the end of the 1920's boom, and also at the end of the 1960's boom. It was also evident in other markets at the end of a speculative run-up - the two famous examples being the John Law "Mississippi Scheme" experiment in France with paper currency, and the "South Seas Bubble" in England, both in the mid 1700's.
We are deeply concerned that everyone is assuming that Covid-19 crisis is essentially behind us now, and that "stimulus cheques" will address the issues facing major Western economies, and re-ignite long-term economic growth. We caution that this outcome just does not seem to be in the data we are looking at. Where we live, a strict lockdown and "State of Emergency" remains in effect. Travel is restricted, many stores are closed, vaccines are unavailable except for politically-connected folks or special-interest groups, and infection and death-rates continue to rise. We know many folks who have cancelled projects which would have required significant expenditure. These projects may never be undertaken, and a "new-normal" of reduced level of economic activity may become evident and last for several years.
I was surprised to find this little "back-of-an-envelope" cycle-projection, calling for a major downturn in 2021. It was done 5 years ago in 2016, and knew nothing about Covid-19. But we wonder if Covid-19 will become the "Big Excuse" for all sorts of economic change. We are already seeing it being used to justify an astonishing level of service-quality reduction in an number of areas. To create a serious market trough, all that has to happen is for the current speculative "bubble" to continue (and then "burst"), and then a majority of people to reduce expenditure, and simply cancel or delay (for years) economic and business plans they had previously in place.
We don't actually need "Covid-19" to trigger a Depression. Just a rise of a couple of points in interest-rates, some tax increases (to fund the massive government expenditures being carried out), and some sort of further economy-wide inducement to avoid spending money or engaging in business activity - and then we have all the conditions needed for a solid, self-re-enforcing downturn to get rolling.
I think the current stock-market price levels are not supported by underlying valuations - at all. Electric vehicles - even a modest sized Tesla SUV - cost over $100,000 in Canada. The conversion of an oil-based economy to one that uses EVs - Electric Vehicles - will be very expensive, and will seriously impoverish those who need to purchase the things.
The current crop of "Green Politicians" are lying to us, when they suggest that a "Carbon Tax" will create economic opportunity. It is just not true. It is just more tax-cost for the average economic agent, who is already under severe stress - both as business person and as a consumer. A few rich Toronto lawyers and high-paid Government workers are doing alright - but even they cannot travel, and so are not spending like they used to .
This is just not an economic environment that motivates a heavy run-up in equity valuations and stock prices.
This just looks like a really serious bubble - and seems to have the characteristics of all bubbles - fueled by massive cash stimulus, borrowed money, and young folks shouting "Hey, man, I want MINE! Let's light this candle! Wheee!"
Predicting the outcome here is not really too difficult, is it?