ELLIOTT WAVE TRADER AVI GILBURT: Don’t Worry About A Repeat Of A 1929 Depression; It Will Likely Be MUCH WORSE!
Sentiment Speaks: Don’t Worry About A Repeat Of A 1929 Depression; It Will Likely Be Much Worse
I recently read an article which was warning about a repeat of a 1929 Depression. While I believe the author correctly believes that we are approaching the end of a long-term bullish market cycle, his theory is that we will continue to see inflation due to further money printing through quantitative easing (QE).
However, that really evidences a lack of understanding of how QE works. You see, QE is merely a machination through which more debt is made available in the system, which is an indirect manner to increase the money supply. It is not actual printing of dollar bills, which would directly increase the money supply. Therefore, if more debt is made available, the only way you will get inflation is if there is public demand for that additional supply of debt. Without the matching demand for the additional debt supply, QE becomes a failure. One can actually look at it as the government playing chicken with the public.
As a small example, if we look at the following chart, we see that the government attempted to make debt more readily available during the Covid Crash. Yet, it did not help until the market bottomed in the 2200SPX region.
And, of course, many of you will view that chart and claim that it “eventually” worked. However, we should look at this within an appropriate relative context, as the market actually dropped 1300 points (37%) before it finally bottomed, despite all the attempts by the Fed.
Allow me to present you with a similar example of this phenomena. When my eldest children were 3 and 5 years old, and we were stopped at a traffic light, they would look at the traffic light, and say “now,” as they try to time the light changing back to green. And, if it did not change at their first attempt, they again would yell out “now.” And, this goes on for maybe another 10 to 15 times, depending on how long the light takes to change. Yet, when the light finally changes at one of their “now’s,” they proudly assume that they caught that timing ever so perfectly and caused the light to change colors.
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Does this not compare to those who maintain the belief that the Fed “eventually” caused the market to bottom? Eventually, the market turned up just like the traffic light eventually turned color. While we know that the traffic light has an internal mechanism that changes the color of the light at specific intervals, most people do not understand that the market works in somewhat of a similar manner.
You see, before the market even turned down in February of 2020, I was posting public analysis in the 4th quarter of 2019 which was calling for a 30% decline, likely beginning in the 1st quarter of 2020. And, this is before anyone even heard the word Covid. Moreover, I had an ideal target of 2200SPX for that decline, and the market bottomed at 2187, within 13 points of my ideal target set many months before.
Of course, many will dismiss my analysis as me getting lucky with not just the market call for a 30% decline, but in also getting lucky with the call that the market should bottom in the 2200SPX region. And, of course, anyone who has tracked me over the course of my 13+ year career in providing public analysis knows that I am very lucky person many times over. (smile).
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Spot on and totally agree with this. When it happens then it is going to be gnarly for a lot of people!