Back in 2010 when we made this bold forecast, we got a lot of flak. But once folks examined the analysis, history, and math they realized it was quite plausible based on market history and inflation, but almost everyone was still dubious. In 1976 our illustrious founder the late, great Yale Hirsch discovered this amazing perennial pattern and phenomenon was based on how exorbitant government spending creates high inflation and how the subsequent decline in purchasing power of the dollar drives the market to incredulous new heights.
The cycle is based on previous moves following WWI, WWII and Vietnam and the associated inflation caused by massive government spending. Sound familiar? The other factor in our Super Boom equation is technology, what we call “culturally enabling, paradigm-shifting technology.” Ubiquitous technology that ramps up human productivity exponentially like the microprocessor, indoor plumbing, the automobile, refrigeration/air-conditioning, air travel, etc. Things that impact the world collectively and change people’s lives individually.
Our study of the current manifestation of this amazing long-term cycle began back in the December 2004 edition of this newsletter in a piece on page 8 entitled, “
Proving Grounds: War and Peace”. It was the first of a three-part series culminating in the
February 2005 issue where we imparted Yale’s calculus from his seminal April 1976 newsletter article entitled:
Stocks Catch Up With Inflation Eventually — 500% Moves After Both WW1 & WW2 — Can It Happen Again? Dow 3420? The point being that the market is bound to make these huge moves over time “just to keep up with inflation.”
It wasn’t until May 2010 as we were preparing the
2011 Almanac that this 500% Move Super Boom forecast crystallized. With the depths of the Great Financial Crisis in the rearview mirror it became clear to us that the 2009 bottom correlated almost perfectly with the secular bear market lows Yale identified in 1921 (WWI), 1942 (WWII) and 1974 (Vietnam). At that point we realized we were likely at the beginning of the next 500+% move secular bull market. Published in mid-May 2010 “
Next Super Boom – Dow 38820 By 2025 – Stocks Catch Up With Inflation, But First Inflation Catches Up With Government Spending” appears on page 10 of the June 2010 newsletter archive.
We’ve learned a great deal about this cycle over the past 20 years. The financial, economic, political, technology, and media landscapes have changed quite a bit, but humans are still creatures of habit as are the machines and tech they invent. Governments still throw massive amounts of money at major crises like war and pandemics and that creates inflation that stocks inevitably catch up with.
Now that the market has achieved our monumental prediction, it begs the question: What’s next? We will continue to examine and analyze this Super Boom Cycle and the prospects for the longer-term trajectory of the market and inflation and the evolution of the new culturally enabling, paradigm-shifting AI technology.
At this juncture, it appears to us that we are in the early stages of AI, somewhere in the third, fourth or fifth inning, perhaps even the first inning. It’s reminiscent of the early days of the transition from MS-DOS to Microsoft Windows in the early 1990s. The microprocessor which first came to market in the early 1970s and scaled up in the early 1980s as the last secular bull took off in 1982 led to this operating system software innovation. MS-DOS came out in 1981 and Windows first came out in 1985. Between 1992 and 1995 when Windows 3.1 and 95 were released is when it “got real.”
(Please forgive the broad strokes here. There were a plethora of other innovators and companies that drove that tech boom just as there will be many to profit from in the current boom.)
When Jeff started full-time at the firm in 1989 one of his first orders of business was to convert all the paper calculations for the Almanac to Excel for DOS. Then he transitioned to Windows 1995. When Chris came on the scene over 20 years ago, he built our own proprietary software.
By our current estimation we surmise that AI technology is somewhere in the area of the early Windows years from 1992-1995 and that this secular bull and Super Boom has many years to run. Yes, there will likely be at least one cyclical bear market and recession during this period, perhaps even as early as 2025 or 2026, but that is a discussion for another time and study.
Wall Street’s CEO Jamie Dimon himself said it the other day that AI’s impact could be as “transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the Internet.” AI clearly appears to be the kind of technology that ignites a generational innovation and productivity boom. We believe AI will fuel the economy and the market to even loftier highs before the current secular bull market ends.
Based upon the Super Boom pattern, completed three times in the 20th century, the next target for Dow is 62430. How long it will take to reach this level will likely depend on when the current inflationary period cools to be in line with recent historic norms of around 2%. However, based upon the 10% per year average gain since 2009, Dow could reach this lofty level by 2030.
Before dismissing this lofty target as insanity, let’s do a quick review. From the familiar chart above, note the historical periods of war, the shaded rectangular areas of Dow consolidation, and the corresponding surges in inflation. To be clear the periods of war are times when the U.S. military is engaged on foreign shores with a major deployment of boots on the ground, not to be confused with the current conflicts where the U.S. military is in theater. When Yale discovered and published the Super Boom pattern in April 1976, he observed the 500% moves based upon the final bear market low of the shaded consolidation areas, the “launching pads” for the massive bull gains.
Yale’s forecast for a 500% move at that time used Dow’s 1974 low as the starting point. From that low Dow crossed 3420 on May 20, 1992, and kept going for another eight years. With the benefit of hindsight, we now know that the end of that launch pad was in August 1982 when inflation finally retreated. From its intraday low on August 11, 1982, at 770 the Dow climbed 1447% to its intraday high of 11908.50 on January 14, 2000. From the low in 1974, which Yale based his forecast on, to its 2000 closing high, Dow gained a staggering 1957%.
Fast forward to 2010 when we made the call for Dow 38820 by 2025. The secular bear was still in control and the market was recovering from the financial crisis of 2008-09 and we based our call on the 2009 bear market low. Once again, with the benefit of hindsight the secular bear and launching pad for the current Super Boom was not completed until 2013 when Dow broke out to new all-time highs and never looked back. The final mini bear bottomed on October 3, 2011, at Dow 10655.30. A 500% move from the intraday low on October 4, 2011, of 10405 takes Dow to 62430. From Dow’s recent all-time high of 39807.37 on March 28, to 62430 it is a 56.8% gain. As crazy and far-fetched as this may sound, the Dow gained over 114% from its March 2020 low to it most recent all-time high.
Our 2010 call for a 500% move by 2025 has been completed, but the Super Boom pattern suggests there is still more upside yet to come. The current secular bull market continues with AI most likely being the next paradigm-shifting, culturally enabling technology that propels the economy and market to new highs. To be clear, this is the market’s long-term trajectory based upon the Super Boom pattern. The market will not go straight up, there will still be pullbacks, corrections and even a mild bear along the way. In the near-term we stand by our current cautious stance with modest weakness expected during the historically tepid “Worst Months” as the market comes to terms with inflation, interest rates and a presidential election.