Janet Yellen Just Made History

Thursday, June 29, 2017

Janet Yellen

For the last several years, when we were still below the 1800 region in the SPX, we have been prognosticating that the market is going to head to the 2537-2611SPX region before any correction will be seen. Thus far, the market is still on target.

As George Santayana wisely said, “Those who do not remember the past are condemned to repeat it.” And, it seems that Ms. Yellen is forgetting her history.

One of the key factors in signaling a major market top is the expectation by the masses that one cannot happen. And, anyone that knows their history knows this to be true. 

For those that know their stock market history, you would know that those “in the know” were absolutely certain about the impossibility of a market crash right before the market crashed and lead us into the Great Depression. Let me show you a few examples:

"We will not have any more crashes in our time."

This was said John Maynard Keynes in 1927, two years before the stock market crash which lead to the Great Depression.

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months."

This was said on October 17, 1929, a few weeks before the Great Crash, by Dr. Irving Fisher, Professor of Economics at Yale University. Dr. Fisher was one of the leading US economists of his time.

"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."

- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

"There will be no interruption of our permanent prosperity."

- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

And, these are just a few of the popular quotes of their day. And, by the way, has anyone heard of the Pierce Arrow Motor Car Company? You have not? Well, that is because they went bankrupt during the Great Depression. But, I digress.

In 10 years from now, we will likely be adding Janet Yellen to the list of those who lacked the foresight to see what history should have taught them. Yesterday, Fed Chair Janet Yellen said that the banking system is "very much stronger" due to Fed supervision and higher capital levels. But, she then followed that up with what I believe will be her history-making statement. Yellen also predicted that because of the measures the Fed has taken, another financial crisis is unlikely "in our lifetime."

I am sorry to tell you this Ms. Yellen, but history’s lesson will be learned the hard way by those who have failed to already learn from the past, as Mr. Santayana has warned. This time is not different.

As for timing, I think we are still several years away from the major market top that Yellen is unable to foresee. In fact, I still foresee a correction taking shape to begin in 2018. However, I don’t think it is highly likely for that correction to usher in the next major “crash” that Ms. Yellen has assured us will not happen in our lifetime. Rather, I think we will see one more major rally phase starting in 2019/20 before that crash will take shape in the later 2020’s.

See long-term chart illustrating the wave count on the S&P 500.

Avi Gilburt

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net); a live Trading Room featuring his intraday market analysis (including S&P500, metals, oil, USD & VXX); interactive member-analyst forum; and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at info@elliottwavetrader.net.