Loading ...And here is the stunning punchline: out of the five historical instances of this pattern (leaving out the present case for obvious reasons), Nomura finds that the only instance that was followed by a sustained market rally was that of April 1933, when the US abandoned the gold standard in the midst of the Great Depression.
Which makes sense: with stocks in freefall for years after the Great Depression started, what some argue stopped the collapse, was the signing of Executive Order 6102 by FDR, which not only ended the gold standard, but also confiscated all gold held by the public, and finally devalued the dollar against gold (Roosevelt changed the statutory price of gold from $20.67 to $35 per ounce, thereby devaluing the U.S. dollar by 40%). Such a historic fiat devaluation against gold was, to many historians, the necessary condition that finally let stocks find a bottom during the great depression, and started the long and painful recovery… the culminated with World War II.
Of course, conditions now are vastly different than they were at the time of each of the five prior instances, with the dollar long ago losing its convertibility into gold (thank Nixon for that) – yet while it would be next to impossible to confiscate gold, a massive dollar devaluation against the yellow metal may be just what the Fed is planning next (as Harley Bassman suggested in 2016) – so Nomura’s dissection of these market patterns is intended only as something that may be of interest from a technical standpoint. That said, this look back at 120 years of market history may be helpful to market observers attempting to assess the sustainability of the rally in US equities…