This morning, I read how Jim Cramer stated in one of his recent shows, "The stock market runs on cycles. When you have this many running at once, the averages tend to be pretty darn resilient...That's why I think you need to keep buying the dips. There's just too much to like." It's interesting when you agree with someone on one point but completely disagree with them on the same point.
I am not entirely sure "which cycles" Cramer is talking about but I know one cycle that has been about as accurate as a swiss watch the past 100+ years - and that is the 7-year cycle. About every 7 years, something funky happens in the stock market. And the propensity of the time, stock markets fall hard. Here is a run-down.
2015: Market experienced small losses, but the only negative year for the SPX since the advent of QE in 2010.
2008: Housing Bust, stock market lost just over 50%
2001: Dot.bomb, major indexes lost right at 50% whereas high-flying tech stocks were largely wiped out.
1994: Shallow but lengthy recession, stock market correction exceeding 10%
1987: Black Monday – the single worst day in the history of the stock market
1980: Gold and silver appreciate several hundred percent relative to the stock market
1973: Hyperinflation fallout from Bretton Woods failure – stock market falls over 50%
1967: Forgotten recession – stocks fall nearly 30%
1959: Beginning of a shallow but lengthy recession lasting until 1962. Stocks largely flat.
1952: Shallow recession. One of the few years with flat returns since post-WWII Reconstruction and advent of Bretton Woods.
1945: End of WWII, the beginning of Bretton Woods.
1938: Inflationary bear market, stocks lost over 50% in less than 18 months.
1931: Great Depression – stocks fall over 70% from top to bottom.
1924: End of the shortest depression in our nation’s history. Only period of the “Roaring 20’s” where stocks fell.
1917: 40% Decline in the stock market.
There are a lot of interesting facts I could unpack here but I'll just stick to the highlights. First, there has never been a 50% decline in the stock market outside of this 7-year cycle. The worst day in 2001 and 2008 took place on the exact same day of the calendar (not the Gregorian calendar though). Until 2018, the stock market only fell in excess of 10% three times and it did twice during this 7-year cycle on the exact same day (again, not the Gregorian calendar.)
Some folks are aware this 7-year cycle goes back much further than 107 years when the Federal Reserve was created (FED). In fact, it goes back approximately 3500 years. This cycle started around 1500 BC when the nation of Israel was formed. From the point the Israelites entered the Promised Land, they maintained a 7-year cycle of remission dictated in the Torah. Every 7 years, the Hebrew people were to forgive all debts and let the land rest.
Throughout the history of the Jewish people, they have continued to track this cycle. And the next Hebrew "Year of Remission" (something they call the Shemitah), starts September 6th of this year, Rosh Hashanah.
I find it fascinating that a cycle that is over 3500 years old has somehow played a major role in the pattern of the US stock market. At one point, I studied the impact and ran the numbers and found that if an investor just sat out every 7 years, he or she would have saved themselves over 246% of losses since 1917. At one point, I did another study and found if one would just simply transfer their entire stock holdings into gold during this 7-year cycle, the total returns before taxes would increase by some remarkable amount. My apologies, but I cannot find these studies to quote them exactly as they were lost on an old computer. I do remember the 246% figure vividly, just not the one where I "reallocated to gold" (I know, I need to d a better job of backing up my hard drive!)
So if markets do move in cycles, as Jim Cramer sez, then I think this cycle is one we need to pay particular attention to. Will it be valid in an environment where the FED is creating FIAT dollars by the trillion? If the cycle is indeed valid, can we expect a "soft-landing", to borrow a term from Cramer himself, and see mild single-digit losses like took place in '15? Over the past 100 years, there has only been one example of back-to-back 7-year cycles where the stock market didn't get creamed. This was in the 1950's when practically the entire world was reeling from WWII and heavily dependent on the US exports to help rebuild. Also noteworthy, this was during the early years of the Bretton Wood monetary experiment where the entire world over was buying US debt and currency as the USD was firmly established as the world's reserve currency.
I believe the 7-year cycle is not something to contend with. I have heard, "Don't Fight the FED!". Well, I believe there is a Power much higher than the FED and He apparently set this cycle in place long before the FED came along. Our investment style is nimble and agile so we'll continue to be invested with tight stop-losses on all our positions. But as we move closer to the Jewish New Year, we'll start allocating assets to more defensive positions.