Additional References
July 2005, EWFF
Another shift that follows as a natural consequence of the bear market is a reversal in the public consensus from “for” to “against” the war in Iraq. A similar reversal to greater than 50% against occurred with the Vietnam war in 1968, when new all-time highs in many of the small-cap averages accompanied the Dow’s test of its Cycle wave III peak. The same variety of small-caps were among the only stocks to carry to new all-time highs in 2005.
June 2004, EWFF
It seems so obvious now, but we do not recall anyone agreeing with this EWFF forecast for a protracted war in Iraq back in late March of 2003 when U.S. forces were storming toward Baghdad: “Currently, it is not expected to last much longer than the first Persian Gulf War. But the level of divisiveness surrounding the latest conflict, the terrorism that precipitated it and the extent of the U.S. incursion on to foreign soil already suggest that the endeavor will last longer and be far more geopolitically complex than its predecessor.” In October, The Elliott Wave Theorist added, “The occupation of Iraq by the U.S. will progress from a quagmire to a financial, political and public relations disaster.”
Back in October when EWFF initially compared the mixture of peak mood and emerging bear market trends to that of 1968-1970, one of the signs of the victory mentioned for the negative mood trend in late 1969 and 1970 was that “trauma over Vietnam reached a new extreme.” At this point, the victory for the negative side of the social mood is so evident that the newspapers are completing the analogy for us. Many compared the Iraq prison scandal to another international military incident that was revealed 34 years ago (by one of the same investigative reporters), the My Lai massacre, which also forced many Americans to confront a negative self-image for the first time. In both cases the incidents occurred before the stock market peak, but the public’s explosive response came months later when the market was in full retreat.
The United States will survive the bear market, but the ideals and values that it stands for will be severely tested.
May 2004, EWFF
Bear markets are necessary because they correct the excesses of the preceding rise. At big turns, like the one that began in 2000, they bring a wave of reality that breaks down many of the illusions of the bull market years. By the end of the current bear market, baseball will be back on a level playing field, third graders who can’t read won’t be advanced to the fourth, and the airwaves will be safe for the ears of children. But the sobering process is never smooth because virtually every restriction or call for retribution creates a response by an adversary in the same negative mental state. After Israel assassinated Hamas leader, Sheik Ahmed Yassin, a Hamas official responded, “Words cannot describe the emotion of anger and hate inside our hearts.” When Yassin’s successor was also assassinated on April 18, the headline said, “Hamas Vows ‘Volcano of Revenge.’” The more progress the U.S. forces make in Iraq, the more non-aligned parties join the fight and the more terrorists it creates.
January 2004, EWFF
It is interesting to note that the Bush Presidency has suddenly taken on a resemblance to Lyndon Johnson’s administration in the late 1960s. Like Johnson, Bush refuses to choose between conflicting domestic and foreign policy priorities. He has hitched his political star to a massive expansion of the Medicare entitlement initiated by Johnson and massive military deployments against foreign adversaries in Iraq and elsewhere. Basically, he is trying to hold together the fraying social harmony of the old bull as he satisfies a new bear market thirst for confrontation. It’s called “guns and butter” politics. It didn’t work for Johnson, and, once the market turns lower, it won’t work for Bush either. A lot of other incumbents will experience simultaneous reversals of fortune.
April 2003, EWFF
WHAT ELLIOTT SAYS ABOUT THE WAR
“The fourth wave sets the stage for the ultimate reversal.”
—The Wave Principle of Human Social Behavior
On September 11, 2001, The Elliott Wave Theorist pointed to the destruction of the World Trade Center and the re-emergence of terrorism as an example of how the negative social manifestations of a fourth wave foreshadow more potent destructive forces that will dominate in the next bear market of one higher degree. “Social mood repeatedly traces out five waves up followed by three waves down. The negative themes in ‘wave four’ within the ‘five waves up’ presage those that will dominate, more dramatically and on a much bigger scale, in the ensuing ‘three waves down.’” After terrorism’s birth as a weapon of political manipulation during Cycle IV (1966-1982), it receded in the 1980s and all but disappeared from public view as Cycle V reached its peak in early 2000. It then re-appeared on a bigger scale when the bear market reached maturity in September 2001.
Fourth waves have also shown that they serve as windows into the nature and scope of wars that resurface in a more virulent form at higher degree downturns. The chart shows how the fourth waves of the late ‘teens and 1959-1962 presaged the conflicts that followed the completion of fifth waves in 1929 and 1966. The U.S. entered World War I in 1917 and fought in Europe for 18 months during a fourth wave of Cycle degree. For the U.S., this engagement was just a warm-up for World War II, which also started in Europe before spreading to much more of the globe. Compared to WW I, the U.S. involvement lasted more than twice as long and cost several times as much in lives and resources. In 1962, the Cuban missile crisis pitted the U.S. against communism at the end of a fourth wave of Primary degree. The showdown was a precursor to the Vietnam War, a more sustained effort to contain communism that lasted through the end of Cycle IV in 1974.
In keeping with this pattern, the first Persian Gulf War, which erupted in Primary wave 4 (see Value Line inset on chart), presaged the Gulf War that has erupted in the ensuing major bear market. Currently, it is not expected to last much longer than its predecessor. But the level of divisiveness surrounding the latest conflict, the terrorism that precipitated it and the extent of the U.S. incursion onto foreign soil already suggest that the endeavor will last longer and be far more geopolitically complex than its predecessor.
It may prove important to observe that the current conflict may be positioned to magnify fourth wave conflicts at three smaller degrees: Supercycle (IV) from 1929-1949 (World War II), Cycle wave IV from 1966-1974 (The Vietnam War) and Primary wave 4 in 1987-1990 (The Gulf War). As EWFF said in February, the current battle is probably just a preliminary event to hostilities that could go on for decades. This analysis suggests that it may ultimately involve Europe and Asia.
An important parallel to 1991 is the war’s effect on the popularity of the Commander in Chief. With a February approval rating of 57%, George W. Bush was starting to slip when the “war bounce” pushed him back above 70%. The popularity of the first President Bush followed a similar track. It fell to 54% as the war approached and skyrocketed to 89% in the wake of Desert Storm. Then it washed out to a low of 32% in July 1992, ending his re-election chances. George W. Bush will almost certainly suffer the same fate. The war has given him a boost, but so far it is far less dramatic than his father’s, and, like his father at the same point in 1991, it appears to have put off the bear market slide that eventually always effects the presidency. History tells us that the full effects of a bear market do not end until the public takes its anger out on its leader. Since 1966, a presidential approval rating of below 50% has accompanied or followed every major stock market decline. George W. Bush has yet to cross this threshold. When he finally does, the washout is likely to be commensurate with the degree of the bear market, which means his fall from grace will be even more dramatic than the one his father experienced.
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