Why It Might Be A Good Time To Revisit Ray Dalio's 1937 Analog

Authored by Jesse Felder via TheFelderReport.com,

It was over three years ago that Ray Dalio first proposed his 1937 analog.

After the presidential election, he refreshed it in the context of growing global populism so that it looks like this:

  1. Debt Limits Reached at Bubble Top, Causing the Economy and Markets to Peak (1929 & 2007)

  2. Interest Rates Hit Zero amid Depression  (1932 & 2008)

  3. Money Printing Starts, Kicking off a Beautiful Deleveraging  (1933 & 2009)

  4. The Stock Market and “Risky Assets” Rally  (1933-1936 & 2009-2017)

  5. The Economy Improves during a Cyclical Recovery  (1933-1936 & 2009-2017)

  6. The Central Bank Tightens a Bit, Resulting in a Self-Reinforcing Downturn (1937)

And if these fundamental parallels weren’t enough, we now have a rather interesting price parallel to consider. The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. As I have suggested in the past, price analogs are not very valuable on their own but when the fundamentals also parallel closely they become far more interesting.

In this case, the fundamental parallels are only getting tighter as time passes. Despite the yield curve currently sending a clear red flag, the markets are now pricing in better than even odds of two more rate hikes this year. It seems ‘central bank tightening into a self-reinforcing downturn’ is becoming a more distinct possibility as the economic cycle ages and inflation pressures grow. In other words, “the policy stakes are now very high,” and history provides a clear road map for markets.

Comments

gdpetti RudeDog2 Thu, 07/26/2018 - 11:02 Permalink

That's exactly what happened during WW2.. selected targeting to prevent any damage to all those American plants there. Yes, there was an occassionally rare hit, but that is the exception to prove the rule that this war was 'fake'... fixed by the same banksters and their masters in the SG that setup the Nazis after losing control over their Bolshevik op... Lenin died early, Trosky wasn't in position to take over... and after years, Stalin emerged on top... and started getting rid of all those jewish revolutionaries... 3/4 from the US.

And remember that this '37 parallel is such due to the same SG script being used... every time they out their OWO and prep for its NWO replacement... which is why we see the puppets in DC/EU etc 'outing' themselves.. and  not realizing they are essentially committing suicide... 'they know not what they do'.

This time is different... Mother Nature is arriving... and that will change the entire EM field... or field of our game/school here... Purgatory will end... which side will then control the NWO that emerges from the corpses/ashes of the old? Thus this chart parallel is obvious.... same script, same outing, same self-destruction of the old systems, that won't be needed in the new one... ONE... regional commands yes, but the SG come out of the closet and the oblivious becomes obvious... for those paying attention, as most people will be busy trying to stay alive. It's being called the 6th Extinction... same pattern everytime, so obviously this parallel will look familiar.

That said... perhaps this '37 chart needs to be added or overlaid the '29-32 chart as well? As '37 followed that period of real decline, and we haven't had that decline yet.... It is said that Mother Nature arrives... dark star across the ecliptic plane.. thus market collapse.. then it goes away and things seem to get better amid the damage... 'Morning on Earth' with the remaining market jump, or dead cat bounce leading up to '37 as...  the real deal arrives with the newly refreshed main comet cluster... the 'curtain/wave' to the next level of the 'game'... and all the EM field affects that result on this level/dimension... like plague that always arrives with the comets.... DNA affects etc...

These 'cosmic' affects are left out of the equation on purpose... to keep the herd ignorant and easy to herd.

In reply to by RudeDog2

Sparkey gdpetti Thu, 07/26/2018 - 13:27 Permalink

This is really quite interesting GDPETTI, I am a believer in cycles, climate cycles for sure, but I also believe there must be an 'Insanity' cycle, Humans exhibit mass insanity from time to time of course changing times nurture different responses.

People imagine our 'Leaders' create the reality that confronts us everyday but they don't, the times we live in motivate our responses to it, the times keep changing, and the Leaders, in their desire to see their causes triumph  must continuously adapt to  the ever unfolding new reality.

This is one of the thinks I enjoy thinking about, the other is; the paramount role instinct plays in our behavior.

In reply to by gdpetti

RedBaron616 Thu, 07/26/2018 - 09:20 Permalink

Because everything always happens in the financial world just like before, so 1937 is relevant now. Give me a break. Nothing ever happens anywhere near the same in the financial world. When they plug one hole, something totally different happens next time.

tunetopper RedBaron616 Thu, 07/26/2018 - 10:13 Permalink

Corporate Tax Rates going to 22% from 35% in the US plus the re-patriation of foreign profits is part and parcel to the tarriffs and currency battles going on ie, the dollar / yuan and weakness in both Euro and Pound vs dollar.  We have not seen these differentials moving in such wide paths since the 1930's. Any other correlations that might have some validity aside- the trade issues are ones that are a tell.

Also - we have had a much broader recession than the "recovery" in GDP from 2009 would suggest.  Look at the debt on the backs of young folks.  That isnt going away - they have refinanced their student loans for longer terms, and have not gotten the jobs they'd expected when they left school. H1-B Visa programs have taken their jobs - as well as off-shoring and technology- robotics and computers replacing many clerical positions in financial services, accounting, health care.  Further - health care premiums and co-pays/deductibles are a huge drag on family formation.  The tax package doesn't help that much because workers are still taxed via FICA.  And employers are much more apt to make their workforce out of 1099 workers - who are responsible for 15+% (employee plus employer portions). Way to go,  you are killing the pizza guy.

In reply to by RedBaron616

RagaMuffin Thu, 07/26/2018 - 09:21 Permalink

This is just stupid. Even if you think markets are bogus, selecting an analog 30-40% less than the prior high and applying it to a structure only a few % less than the prior high is like stretching a knat's ass over a beer barrel........... 

Brazillionaire tunetopper Thu, 07/26/2018 - 12:43 Permalink

 Check out Yellowstone the TV series on Paramount channel (Wed nite 9:00). Pretty damn edgy IMO and I haven’t watched any kind of “TV series” in decades. Father Knows Best, it ain’t. Kelly Reilly’s character is seriously F’d up, and yes, she has already gotten naked (in a stock tank with a bottle of whiskey... or was it champagne?). Her role is to help Daddy (Kevin Costner) “kill” businesses he doesn’t want in Montana. Quality family entertainment. 

In reply to by tunetopper

RudeDog2 Thu, 07/26/2018 - 10:34 Permalink

In '37 there was a semblance of gold backing to the currency, hence ups and downs in stocks.

Today there is only printing, globally.

It won't be a crash this time, it'll be a hyperinflation, globally. 

Followed by Pike's 3rd war, the mother of all wars with attendant famine and disease.  The end result will be the Georgia Guidestones 500m people, with deegle.com 69m in the US.  Loss of 6.5b (93%) people globally, and 300m (80%) in the US.

Herdee Thu, 07/26/2018 - 11:17 Permalink

War for endless deficit spending. It gives the NeoNazis the excuse to bankrupt the nation with all all the flag waving patriotism bullshit to work it all up. Then send all the young people off to die while politicians make money off of the stocks listed on the exchanges.