45 years is an important cycle in trading markets, as it is half of the 90-year cycle and a natural synodic cycle unto itself. The famous speculator and market technician WD Gann actually titled one of his books on speculation and trading ’45 Years In Wall Street’ in which he alluded to that cycle. Note the title is ‘IN’ Wall Street, not ‘ON’ Wall Street. Cycles at their core and by definition are repetitive in nature. So we take great care to determine to the best we can which dominant cycle we are IN.
It appears, given recent geopolitical and national events that we are repeating the events of the 1970s. This would put us around 1976. Cycles are not always exact, especially with longer time periods. So, giving the 45-year cycle a little room on either side we could very well be repeating 1975. Similar to today, in that year The United States had pulled out completely of the nation’s longest war ever, Vietnam. Many of the images we see today on the internet and television of the tragic end of US operations in Afghanistan echo back to the humiliation the nation endured as it withdrew from Vietnam and the subsequent collapse of Saigon in April of that year. Vietnam weighed heavily on the national psyche and it would continue to do so for at least the rest of the decade.
After the end of the Vietnam War, the nation experienced high inflation, low productivity, and a higher unemployment rate: A condition that brought about the coining of the term ‘stagflation’ short for a stagnant inflationary economy. What $1 dollar could buy in 1975 took $1.66 in 1981; the annualized inflation rate was a whopping 8.84%. GDP growth was never higher than that inflation rate in those years. In 1975 the nation had a recession then grew for the next 4 years, at least nominally, never above the best rate in 1978 of 5.54%. Another recession took hold in 1980. As to the unemployment rate, it averaged 7.16% with peaks of 8.2% in 1975 and 8.5% in 1981 adding to the misery. It was the great malaise.
Knowing the history and being students of cycles, how can we position ourselves as traders and investors? In high inflationary periods, it is best to be positioned in what is termed price makers and not price takers. Those companies that have the ability to control their costs and raise prices or at least pass on increased costs and make the new price regime stick will ultimately benefit from an inflationary environment. Also, those companies that are disruptive in nature (new service or better service) that can bring efficiencies, lower cost structures, and increase productivity to their clients should benefit. As to direct investment, real assets such as commodities, hard like gold, silver, copper, and the softs / foodstuffs such as wheat, corn, and cattle have a good track record. Also farmland. Residential real estate is always regional. In some markets, it does well where there is population growth and low regulation, but in a highly regulated market (e.g.: rent control) it does poorly.
It’s August and we are headed into a weak period of the year. Stay nimble, and stay safe.
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