Is the cold war returning, even more?
We can see the future in the past and present, every that we look. Last week saw the 107th anniversary of a day that has had more impact in our lives than almost any other. July 28, 1914, was the day Austria-Hungary declared war on Serbia, the beginning of World War I.
The inequity at the end of that conflict planted the seeds for WWII and the end of that bloodshed led to a cold war.
I recall having air raid drills in grade school. When the air raid siren howled we would all crawl beneath our desks. I recall Whatever the reality, if we take a look, we can see that major wars come in cycles and that our social-economic ups and downs follow these waves.
The theory of 17 year up and down stock market cycles is supported by over 100 years of history. These cycles appear to be intricately connected with waves of productivity and the various industrial cycles fueled by water, steam, internal combustion engine, jet engine, T.V., telephone, computer and internet. The driving energy of each cycle can be attributed to a war.
Here is a look at the cycles in a slightly different way.
You can see this quite clearly in these graphs how each upwards cycle rises after a war (postwar boom) and how the market then crashes before the next upcoming war.
The first postwar boom probably started in about 1865. We cannot see this as the chart does not start until 1890. I am guessing the 1865 date because this was the end of the War between the States. This war was a battle over cotton, the primary ingredient used in the water powered industrial revolution, an era dominated by textiles.
We can see this boom carrying on up through 1900.
The first fifteen year downwards cycle began in 1900, a downfall leading to WWI in 1914. There were a couple of short term blips (which also occurred in other cycles) probably one caused by the Russo-Japanese War which ended in 1905 when President Theodore Roosevelt mediated the Treaty of Portsmouth. The blip you see in 1907 was called the panic of 1907 and was caused by a run on the banking system. (Note this very important point-you will see why in a moment.) This was stopped by J.P Morgan’s importation of $100 million of gold from Europe, but the correction was only temporary as the chart clearly shows.
At the end of WWI, we see the next post war boom which runs up to 1929. Then comes the next fifteen year down cycle from 1929 to 1945. As in the last cycle there is a sharp downward blip in the middle caused by a run on U.S. banks which is once again mitigated by intervention, this time, FDR’s Presidential election and the New Deal.
There is a nice postwar boom 1946 through 1968 once again followed by a seventeen year downfall. (Note the sharp downwards blip in the middle caused when high inflation, a devaluing US dollar, and rising oil prices once again shook the U.S. banking system).
1968 begins the next 17 year downwards cycle which is the rundown to WWIII (Reagan-Thatcher versus the Evil Empire), albeit a cold war the end of the USSR and the nuclear threat kicks off a post war boom that runs (surprise-surprise) for about 15 years until the crash of 1998. Is this a coincidence or a pattern?
If history has anything to do with the future, then we can expect the following: The next big bull market in Wall Street should have begun. There should have been be a U.S. banking crisis somewhere around 2005 and a nice short term recovery thereafter.
These cycles are not exact so the 2007 crisis could have been the banking crisis. The bull market may already be underway.
I do not think so for two reasons. First, the war usually creates some new technology that accelerates human productivity. I don’t see this new innovation yet.
Second, I believe that low and zero interest rates have pushed stock market prices too high.
Thus I believe that we are seeing an extension of the end of a downwards cycle.
What does that mean for now? Perhaps we should not expect too much for the Dow – S&P until after another banking crisis which is still a couple of years away. We should expect a US stock market correction and a drop in the US dollar’s strength.
We already see global tensions building. So what will be the war? Is it terrorism? Is it a hacking war? Is it a war between other Asians, the US and China? Will it be a shooting war as in WW I and WW II or a struggle where the fighting is contained by Mutually Assured Destruction like WW III when Ronald Reagan and Margaret Thatcher fought the evil empire.
We need to invest differently, in a more protected way, and most of all ignore all the headlines in the short-term news.
One way to increase safety and profits is by value investing. I build my value portfolio by following the analysis of Michael Keppler who rates all the world markets in terms of price to book, price earnings, dividend yield and other relative values.
Keppler in his latest developed market update listed ten countries in his Top Value Portfolio.
There were no changes in Keppler’s country ratings last quarter. The Top Value Model Portfolio currently holds ten “Buy”-rated markets — Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom — at equal weights.
According to his analyses, an equally weighted combination of these markets offers the highest expectation of long-term risk-adjusted performance.
Few events have shaped our lives today as much as WWI that battles which began 107 years ago. Some events now, today, in our present are equally important. Pictures into the future are blurry and never sure, but images and actions from the the past and in the present can help us refine what we see.
Watch carefully. Compare today’s events, political, economic and military with those of 1900, 1935, 1988 and today. While you observe and ruminate, keep your investments safe and earning at their maximum potential with investments in good value.
Gary
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If the Almighty were to rebuild the world and asked me for advice, I would have English Channels round every country. And the atmosphere would be such that anything which attempted to fly would be set on fire.
China is rapidly building new nuclear-missile silos
Their purpose is unclear, but the Americans are worried
All the major problems of the world today are global in essence, and they cannot be solved unless through some kind of global cooperation. It’s not just climate change, which is, like, the most obvious example people give. I think more in terms of technological disruption
We are living in a global world – but most schools and books still tell us only parochial histories of one particular country or culture. The truth is that there are no longer any independent countries in the world.
We are all living together on a single planet, which is threatened by our own actions. And if you don’t have some kind of global cooperation, nationalism is just not on the right level to tackle the problems, whether it’s climate change or whether it’s technological disruption.
Read more at https://www.brainyquote.com/authors/yuval-noah-harari-quotes
For decades, China has hewed to a policy of “minimum deterrence”, involving the maintenance of a relatively small arsenal that would allow it to hit back at aggressors but not wage an elaborate nuclear war. The Pentagon reckons the country has 200 or so operational warheads—about the same number as Britain or France—and only 100 or so ICBMs. (America and Russia have nearly 12,000 warheads between them.)
The FAS says the satellite pictures suggest the “most extensive” building of silos since the construction of them by America and the Soviet Union during the cold war.
www.economist.com/china/2021/07/31/china-is-rapidly-building-new-nuclear-missile-silos
North America’s Arctic radar shield is due for an upgrade
Canada and the United States have not yet worked out how to modernise the missile-defence system
www.economist.com/the-americas/2021/07/31/north-americas-arctic-radar-shield-is-due-for-an-upgrade?itm_source=parsely-api
Since the early days of the cold war, Canada has served as North America’s first line of defence from Russian bombers and, later, intercontinental ballistic missiles (ICBMs), whose quickest path to North America lies over the poles. To detect such threats, the United States and Canada jointly built a line of radar stations in the 1950s that stretched 5,000km (3,100 miles), known as the Distant Early Warning (DEW) line, and established a North American Aerospace Defence Command (Norad) in Colorado. The DEW line was replaced with new radars in the late 1980s, creating the NWS. Now the two countries are contemplating its renewal. That is far from simple.
