US campus rumpus – it’s 1968 deja vu all over again!

The sudden explosion of student demonstrations on US campuses to this old hand looks like 1968 history, while not exactly repeating, it is certainly rhyming. Back then, it was the Vietnam War that was the centrepiece of the unrest. Today, it is the Israel/Gaza War. In the Fibonacci number plus one 56 years interval, students have been largely quiescent (the economy and stocks rose) but with a new focus for their anger, social media ensures this time around the protests will be far more effective.

We are seeing the usual large-scale sit-ins, provocative slogans chanted, tent encampments and general menace. With tensions escalating, the police has been called in to at least one major ivy league campus with mass arrests. In the 1968 episode, the National Guard shot a Kent State student dead in the notorious episode (see picture above) with the divisive Nixon about to become President. It would not take much now to light the fuse with the divisive Trump apparently about be assume that honour.

So will history repeat but on a much larger scale this time? Of course, the ostensible focus for their anger is Palestine and the suffering of the people, but this is a convenient displacement anger. At the heart, students today are loaded with unpayable debt, useless Mickey Mouse degrees, no prospects of owning a house at today’s unreachable prices.

Incidentally, I see that in Los Angeles, it requires a family income of at least $250,000 pa to buy a median priced house on a 90% mortgage. How crazy is that?

And a pervasive woke education system (I hope I can exclude the hard sciences here of physics, chemistry, engineering, maths) that alienates many students. Many students today see no constructive future for themselves – or their nation. Hope is being extinguished. That is why nihilism is in the ascendant.

And students are the most emotional, demonstrative and impulsive group in society. Their actions in 1968 lead the US to the Vietnam War withdrawal – albeit eight years later.

But this is part of a wider alienation of citizens from authority and institutions all the way up the the Federal government. In 1968, faith in institutions remained generally high, but not today. Which means the upcoming national election in November is growing into a powder keg liable to go off in all directions. We in the UK will have a similar but much more modest disruption to our politics this year.

I really cannot see a sudden calming of these angers. Indeed, with the US national elections in six months time, I fully expect temperatures to keep rising – and making markets even more volatile.

So how does this sudden negative social student development fit in with the historical record of the stock market? Take a look at what happened 56 years ago in the Dow 30 Industrials:

From the 1930s Great Depression low, stocks staged an historic multi-decade bull run to the mid-1960s with only one minor pre-WW2 recession (grey bars). That was a period when the ranks of the middle-class investor swelled for the first time starting in the 1950s and owning stocks was the favoured means to wealth creation. Jobs were plentiful, house prices affordable and inflation almost non-existent. Happiness prevailed.

Then in 1968 with heightened political Vietnam war societal fragmentation , the Kent State tragedy sparked the start of a major bear phase taking the Dow from 9,000 to the 2,800 low – a loss of a stunning 70% to January 1982. Wow! Incidentally, If you very bravely bought the Dow at the low, you are an investing legend/genius with the index now at the 40,00 area. Please get in touch!

But if you buy it now at 40,000, can you expect similar gains over the next fifty years? And if not, why not? Answers on a postcard, please.

Let me play a little game.

I will ask the same question for house prices. Can we expect the same gains for them in the future as we have experienced over the past 50 years? They have gained 65x from 1970 pleasing most baby boomers. The same rate of growth takes the average house price today of £270,000 to £17,500,000. That is $17.5 million for an average house. And a lot more for something better than average.

At today’s earnings-to house price multiple of a conservative 6x, that means to buy a house in 2074 would take a family income of £105,000,000 pa. That is £106 Million.

Does anyone believe this is remotely possible? Imagine what the benefits bill (and taxes) would look like! If achieved, fiat money would be on a Zimbabwian scale with crypto and gold/silver as the remaining store of wealth and currency.

But if we are on that path, what will the gold price do in this period of massive priceinflation? Hmm.

Will stock market history repeat this time given the five wave Elliott pattern to the recent ATHs that looks complete or very nearly so? If so, will the 70% bear market record fifty years ago be broken?

Last week, AI investors were slapped one way and then the other when some M7 Q1 results were released. First, Meta disappointed but then Google and Microsoft came to their rescue with stunning results on Thursday.

In the week, US data points were generally of the ‘bad news is good’ type. GDP numbers came in frigid and Treasury yields rose to new highs. With the Fed set to pronounce next Wednesday, will the current consensus FOMO investor theme be hit on its head? Remember, the Fed always follows the market, not the reverse. I see more confusion next week.

Yes, the Google and Microsoft results were blockbuster indicating AI services were very strong last quarter, but that is now almost ancient history. Alphabet jumped to a new ATH:

My best guess is that we are in the final wave 5 of 5 leading up to a huge multi-year reversal. But I remain long from $135 (currently $175) but on high alert for signs of the reversal.

As a measure of the growing dispersion among the M7 (Apple, Tesla both well down already), another leader of the AI revolution is Meta, but Q1 results disappointed and I see a potential ‘Island Reversal’ at the wave 5 of 5 highs. Is this another of my pins to add to my pincushion (see last week’s blog)

Provided the gap is not closed and we do not see new highs, I have a potentially very bearish setup given the huge mom div. Only a very strong move to new ATHs would nix this forecast. I consider that very unlikely. Investors are losing faith in Mr Zuckerberg who is unlikely to provide them with a mountain of a sugar rush they need.

So now we have an almighty gargantuan battle on our hands. We are seeing huge AI profits that is dragging Big Tech higher pitted against rising interest rates that only a few weeks ago were almost unthinkable. Pundits were falling over themselves cutting their estimates for the Fed cuts to come. Many now are actually raising their rate forecasts in a total 180. Such is the extreme febrile nature of today’s markets – and a very good reason to either stay away or trade small in the indexes for now.

Are the Grains finally waking up?

Last week I had a piece “Have the beaten-down Grains finally hit bottom” and made a case for setting Wheat up as a candidate for a ‘massive reversal‘. This was the chart I posted

I could not have timed that better! Last week, it advanced strongly to the 633 high – a gain of 65 cents and well clear of my tramline channel. That is a gain of 20% off the 4-year low and heading for my first main target around 650 which is only a few cents away.

Of course, if we have started a full-scale bull market, it is very early days and the fundamentals remain bearish with huge supplies carried over from last season. That has attracted a record short hedge fund interest. But a large speculative short interest is simply just asking to be squeezed – and that is precisely what has been happening all of a sudden. Just as I forecast. Of course, be right on that and get your timing wrong by getting in too early (say back in January-March) and the result would have been the same as being totally wrong although your analysis was correct. It’s a very cruel game we play.

Memo to new traders; Get your analysis and timing right and you will succeed! Easy! Oh, and get your exits right as well to take profits. But that is what my Tramline Trading methods aim to do.

And I will repeat my comment that the Grains/Ags are highly suitable for seeking out winning campaigns that can produce as big or even bigger gains than the more usually traded stock indexes, currencies and PMs.

Finally, we are on the verge of massive swings in society and markets that will take years to play out. Huge volatility in both are assured. If there is one quality that will remain paramount for traders/investors it is this: Stay Nimble and be prepared to change your mind many times.