Economics is, if anything, a very dismal science. Yet you can prove anything you want with near certainty because the ceteris paribus, or all things being equal clause, that in reality never applies, is always assumed to apply. We now know, with certainty, that the biggest mistake the Fed. ever made was to increase interest rates too soon. Bernanke, who has studied this stuff ad nauseam, has told us so. Never mind that the World was between wars and about to be rearranged in geopolitical terms. Never mind that the Smoot-Hawley Tariff Act was signed into law by Hoover. Never mind a hundred other things. The FACT is now firmly established that you should not increase rates.
History tends to repeat itself but nearly always in slightly different ways, or completely different ways if you look at causes rather than outcomes. Elliot Wave analysis is concerned only with the reality of outcomes and does not pretend to address the true causes. So we have once again two charts that help explain this, I hope. As is always the case with charts, they show the history of a stock. Here we have GE, General Electric an industrial conglomerate, and MS, Morgan Stanley a financial institution that can thank its existence to Glass-Steagall , enacted in the wake of the great depression.
Both these stocks were running ahead of the market in general by about 8 to 10 years. One had a zig-zag correction and the other a “flat”. So we have two slightly different examples of what happened that may now tell us what will happen. It also shows that even the best of companies do, from time to time, lose 95% of their value due to seemingly very innocent changes. Enjoy.
Click on the charts to enlarge them and move them around. Also keep in mind that these are monthly charts that do not necessarily show the extreme high or low. For instance in GE’s case the two down legs are perfectly equal all though that is not clear from the chart. There are a lot of other stocks, we will show just one relatively obscure one to further the point, Kohls Corp. It is in our blog.