Podcast: Play in new window
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SHOW NOTES
This week on the McAlvany Weekly Commentary, we continue our two-week exploration of technical analysis. Today, David welcomes Steven Hochberg and Peter Kendall, two highly regarded senior analysts from Elliott Wave International, to examine the markets through the lens of Elliott Wave theory and long-term investor psychology.
In this conversation, Steven and Peter discuss:
• Why today’s valuation levels sit in what they describe as “stratospheric” territory
• How liquidity isn’t simply money — it’s mood, and why that distinction matters as we approach 2026
• Signs of speculative excess: AI stocks, the Mag Seven, Bitcoin, options behavior, leveraged ETFs, and more
• Why Elliott Wave patterns suggest equities may be near a significant long-term turning point
• The real story behind gold’s outperformance since 1999 and the message of the Dow/Gold ratio
• A potential fourth-wave correction in gold before a future fifth-wave advance
• What the dollar’s wave structure implies for global liquidity
• How investors might think about safety, cash, and precious metals if liquidity tightens next year
“So I think we’re right at the edge of where we think market has an opportunity to turn down. And these are just based on long-term mathematical relationships between what we call waves—waves of advance and waves of decline in the market. And these mathematical relationships are expressing themselves at various points as [unclear] progress. Bob Prechter and his Elliott Wave Theorist have done some unbelievable work and very detailed work on some of the mathematical expressions that the market’s showing. And we’re right at the edge of one of those numbers now.” —Steven:
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Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany and our guests today, Steven Hochberg and Peter Kendall. This week on the McAlvany Weekly Commentary, we continue our two-week focus on technical analysis.
As you know, David, last week we had Michael Oliver on from Momentum Structural Analysis. And we got great, great comments from that program. And today, we go into the long-term wave structure of the markets with two of the most respected names in Elliott Wave Analysis.
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David: Well, gentlemen, thank you for joining us today. It’s been a while. We have Steve Hochberg and Peter Kendall joining us as guests. As we noted last week, this is the second week in a row we’ll look at the markets through the lens of technical analysis.
There are some long-term observations from Elliott Wave that are very important to keep in mind and I think will make for a very interesting dinner table conversation through this holiday period to the end of the year. Elliott Wave encompasses not only technical structures and wave counts, but provides an interpretive framework as well, socionomics.
Before we jump in, I want to let our listeners know that Elliott Wave is giving McAlvany Weekly Commentary viewers and listeners a special one-month access offer to their Financial Forecast, the Theorist, and the Short Term Update for $11. You can find the link in our show notes or at Elliottwave.com/david.
The interview will be audio focused. But if you’re curious, there will be a number of charts that are posted that you can refer to on our YouTube channel.
Well, getting started with a long-term look at valuations, in early November you published a chart of the S&P companies in that index, their book values and dividends spanning from 1927 through October of 2025. And it shows how current levels are excessive and well outside historical norms, with the 2019 to 2025 period really reaching into the stratosphere. In fact, I actually missed the October 2025 dot at first glance because it’s nearly off the page. Could you expand on that theme of overvaluation to get us started?
Steven: Yeah. That chart that you’re referring to, we call it our Pluto chart because the valuation levels are just in a different stratosphere right now. The S&P 500 dividend yield is 1.16% right now. And the S&P 400 price to book value is 7.85. And if you think about that dividend yield, the yield that you’re getting on the stock market, the three-month US Treasury Bill is now yielding 3.8%. So you’re getting more than triple your return just by buying a short-term Treasury Bill, which has zero risk. And so what we’re pointing out here is that there’s just a tremendous amount of risk in the market right now, simply based on valuation.
Now, we don’t use valuations as a short-term timing tool because there’ve been many years where you’ve had outsized valuations relative to historic norms, but it does give you a landscape, a basic backdrop of the risks that you’re taking right now by investing in these markets that are way, way overvalued based on history.
Peter: Yeah. And if I could provide some historical context, that chart shows you normal in the form of the box, which is basically towards the bottom of the chart. And that’s prior to 1929. That’s all the dots there were. Every year was in the box, other than maybe ’29—went up through the top of the box. And then what happened in the ’30s was you fall down through the bottom of the box. That’s the revaluation called the bear market. And this is all one bull market, in our opinion. So what you’ve had since at least sometime before 2000, we climb out of the box and we continue to do that. So it’s been a generation of overvaluation, not just an overvaluation like we had in 1929. And we will get a revaluation at some point, we think right about now.
David: Is there something to be said about the unhinging of the dollar, and how, in nominal terms, things have just gone crazy? And then with the advent of leverage and new leveraged tools, where we just see things priced into the stratosphere, as you say, this is the Pluto chart, is there something about the money system that drives that even farther than we saw prior to the 1930s?
Steven: I think that’s a really good point. Talking about how we all have fiat currencies now, and the leverage that’s coursing through just about every financial asset. It’s all about leverage right now. And we can see this in just basic— For example, just your New York Stock Exchange margin debt levels, which are over a trillion dollars right now at historic levels. But you could see it throughout other areas. For example, we now have these exchange-traded funds that use three times the leverage. We have zero-day options. I think they’re well over 50% of the total option market now. That’s just a gamble on short-term leverage use on what’s going on. Seeing this leverage just blow up. And think we’re starting to see changes very subtly in the use of leverage. And I think next year, in my mind, is going to be kind of the loss of liquidity.
I go way back. In 2007, 18 years ago, I can’t even believe it’s been that long, we started out our January issue with a special report called “The Year of the Financial Flameout.” And it turned out to be very prescient. It took us up until October of that year before mortgages started to implode.
But a lot of things are reminding me right now of that time period. And what really is piquing my interest right now is I’m looking at the yen carry trade. And we talked about it in that issue, in that January 2007 issue. And I think it’s coming back into play right now as yields on 10-year Japanese bonds are the highest they’ve been since 2007, 2008. They’re up about 1%. Doesn’t seem like a lot. But basically, there were years people were just borrowing in yen and investing throughout the world. And this is where this leverage is coming from, or emanated from.
And I think 2026 is going to be kind of the year of the loss of liquidity. I think liquidity and that yen spigot is going to be turned off a bit. And I think that the amounts of leverage that we’ve built up are going to start piling down and falling down on itself. So that’s something to think about and look at as we turn the corner into 2026.
David: Well, liquidity is something that certainly drives these markets. We’ve got extreme expressions of speculative excess. And obviously, that’s supported by the amount of liquidity that’s in the market. Can you walk us through what you see in terms of the options call volumes, the Mag 7, and AI in particular as expressions of speculative excess supported by that liquidity you’re talking about?
Steven: Yeah. It’s everywhere. Pete, hop in whenever you want. But we see it in the mania for Mag 7 and the mania for AI stocks and the mania for options and the mania for bitcoin and the mania for any asset that is moving up in price. There’s just been a huge move into whatever’s going up. But liquidity is, and I just want to make this point, it’s an ephemeral event. It’s a psychological event. And you have liquidity until you don’t. In other words, when people are optimistic, they want to buy stocks, they want to speculate, they listen to happy music, they wear bright colors. And when that mood changes to something more negative, well, all of a sudden, they start dressing more conservatively. They don’t buy stocks. Liquidity evaporates. And all this house of cards that we’ve been built upon with all this leverage, I think, starts imploding in on itself.
Peter: Yeah. So you mentioned the Mag 7 and AI. So this is obviously a big part of what’s going on in the stock market. In fact, you wouldn’t have a rising stock market over the course of the last year without the Mag 7 and their emphasis currently on artificial intelligence stocks.
We’ve recently completed a special section that’s a two-parter. It’s called “The Socionomics of High-Tech: Breakthroughs and Bubbles at the Great Peak.” Socionomics, ours is in a technical approach to the stock market, but beyond that, it’s also a social science which has been instituted by Robert Prechter, the founder of Elliott Wave International. So it’s kind of a long historical take, but if you bear with us in having to get those issues, I think you’ll learn a lot about the great bull market, and technology within that. Specifically, we begin in January of 2000 when the Dow was about to top and the Nasdaq held up a few months.
But at that time, the internet was not making any money. But when you took the internet stocks that weren’t making any money out of the index, they were losers in 1999. So we stated, “since internet stocks account for almost all the gains among the money losers, it is unavoidable fact that a psychological state—the belief in the future profitability of the internet—has held the market up through the latest phase of the mania.”
And then we went to ’29 and said the same thing happened. And at that point, it was RCA. And Exhibit A is a chart of RCA, which is greatly believed in, even though the industry that it represents hasn’t yet even happened, basically. And then, of course, it declines 90%. And we all know what happened to internet stocks in 2000. And we’ll lay the history out for you as we go in our report.
But basically, the bottom line is: AI is the internet of 2000. And it’s at the same point in time where the promise has been paid for, but the reality of the profitability part of the equation, that’s yet to come. And ironically, as a few companies start making money, the others will not perform as well. It’s like the car companies in ’29 as another example. There were many, many, but it was hard to know which ones were going to survive, but most of them did not.
David: Yeah. Just to come back to your offer, I love looking at the chart work y’all do. But the socionomics is particularly intriguing to me. When you start looking at the psychology of the market and the mood and ways of measuring mood as an indication of where you’re at in a longer cycle. So I would encourage our listeners to take advantage of that offer.
Crypto was, until October 6th, another expression of investor risk appetite. And obviously, bitcoin and ethereum and others have been selling off pretty hard since that October peak. What do you see developing in the crypto markets?
Steven: Okay. I think you’ve hit that right on the head there with that question, is because that really is an expression of speculation. And one of the things we did a couple months ago is we just took a chart of the S&P 500 and we overlaid a price of bitcoin on top of it. And it’s uncanny how closely they align themselves. There’s this argument that bitcoin is going to be a store of value and it’s going to be new money and everything, but when you look at a chart of the S&P and the chart of bitcoin, they’re basically one and the same. They trend together, they rally together, they go down together. So bitcoin is nothing more than an expression of speculation, just like the S&P is. If you’re buying the bitcoin, you’re essentially buying the S&P. There’s just no difference in the way they move.
Now, one thing we do and we look at and we showed in I believe our September issue was the bitcoin/gold ratio because I think that was a good proxy for speculation versus conservatism. I guess when people are frisky and speculative and they want to get in the market, you can have options and so forth. But bitcoin usually does better relative to gold. And then when people start getting a little bit more conservative and they start pulling back a bit, gold historic value starts doing better relative to bitcoin. So that bitcoin/gold ratio is important. It peaked on January 13th of this year at 38.71. And then it declined with the market, and then it had a lower peak in April at 35.17. And since then, it’s broken down below a three-year uptrend line. And I think that’s an important signal that the basis for the speculation, the market, is starting to unwind here. So if the bitcoin/gold ratio continues in its current direction, I think it is setting up as a pretty good sell signal for the market.
Peter: Another symbol of optimism, I guess, is the treasury companies where the complete strategy of the company, such as strategy, is to just buy bitcoin and to leverage it. So here you have the same stew of leverage. You see the initial pullback being more extreme there. So you can see how leverage instruments will respond to the decline as we go further in the overall market.
David: Amazing to see some of those treasury companies borrowing money.
Steven: Yeah. And one other final point is that similar to the SB dividend yield, if you just bought three month Treasury bills at 3.8%, you’ve outperformed bitcoin this year, which is down in the year, down I think about 7% last time I looked. There’s certain signs that are showing—that are starting to emerge—that there’s a change in the mood of the market. And I think that’s one of them.
David: I found your equity market analysis in Fibonacci terms very interesting. Your projections of 46,880, 46,750 for the Dow industrial average. Are we within a close range of what you assume to be a peak? Walk us through that.
Steven: Yes. I think we’re right at the edge of where we think the market has an opportunity to turn down. And these are just based on long-term mathematical relationships between what we call waves—waves of advance and waves of decline in the market. And these mathematical relationships are expressing themselves at various points as [unclear] progress. Bob Prechter and his Elliott Wave Theorist have done some unbelievable work and very detailed work on some of the mathematical expressions that the market’s showing. And we’re right at the edge of one of those numbers now, so we think this is a pretty good area for the market to peak out and start turning to the downside.
Peter: Yeah. It was a pretty exciting process growing through the peak, very hair-raising on the one hand because there were so many challenges to the highs, but NASDAQ in particular was gapping all over the place. And you could just see as you look at a chart, a transition from a mania to manic depression, these little spikes of, “Oh my gosh, maybe it’s not going to go up.” And people are surprised in both directions, it seems like, every morning.
And by the way, the key date, I think, is October 29th at this point, which was the 96th anniversary of Black Tuesday in 1929. These kind of interesting similarities ring through the piece that Bob wrote.
David: While equities have hit all time highs, you point to gold outperformance since 2021. But that outperformance actually goes back further, to 1999. We don’t see gold as being in stealth mode, but for the generalist investor, there certainly has been more interest taken in speculative risk assets. How would you characterize the move in precious metals?
Peter: Well, first of all, we were talking before about the monetization of the economy and how extreme it’s been. And that chart shows you the depth of that, the change over the course of the last 100 years. There’s a phenomenal difference in terms of what you could buy in the market with an ounce of gold. So it just speaks to that difference in the middle of the wave, the 1920s versus the current situation.
Steven: Yeah, no, that’s exactly right. I go back to July 1999 when you bring this up, David, because that’s when the Dow/gold ratio peaked, and that’s simply the Dow Jones Industrial Average measured in terms of real money, which is gold. It took 44 ounces of gold to buy the Dow back then. Since then, it’s been incredible because gold has been up 1500%. I think the exact figure is 1515%. And over that same period, the S&P is up 409% and the Dow’s up like 340%. Even the NASDAQ 100, which has been focused in technologies, up 1000%. So gold has outperformed the stock market over this entire period. I don’t think people really realize that. This historic form of money has done better than the stock market. And basically the reason was because the purchasing power, the denominator, which is the US dollar in just nominal terms, has lost like 95% of its value. It’s just crashed.
And so as that’s gone down, the numerator, which is S&P, Dow, whatever, has gone up in value. So it’s a little bit of an illusion because if the Dow is priced in terms of real money, today as we speak it would be down 72%. There’d be no question that we’ve had a bear market over this period, but due to monetary inflation and loss of purchasing power, we’ve got this illusion that everything’s great.
And so I think that psychology changes moving forward. People start realizing what inflation has done. They realize the dollar has just gotten crushed. And I think that in nominal terms the stock market, the Dow, and so forth, they’re going to start catching up to where they are in real terms.
David: There is this illusion of wealth tied up in nominal terms. And when you talk about the 95% devaluation of the dollar, one of those asset classes that kind of measures similar to gold, because it’s a real asset, your grandfather could have bought a house for 4,500 bucks, your father for 45,000, and today the average single family home’s close to 450,000. This really isn’t a measure of, “Oh, everybody’s that much wealthier.” It is that it takes that many more units of currency to buy the same sticks and bricks and mortar.
Steven: That’s exactly right. I mean, put it exactly the right way. It’s not that gold has held its value, it’s that the dollar has plunged. That’s really the story because a dollar is just an accounting unit created by the Fed. And so in mid-October, a couple weeks ago, it took 4400 of those accounting units to buy an ounce of gold. So it’s not that gold’s really changed. It’s just that the dollar has lost its value. And your example of the housing prices is just perfect. It really hits home as to what’s been happening.
David: Let’s come back to this numerator/denominator. The Dow/gold ratio measures gold against the Dow. The Dow in 1999, as you said earlier, it swapped for 44 -plus ounces of gold. Today it’s less than 12. In real money terms, the Dow has been in a bear market for 25 years. Where do you see this trend resolving itself? Is the old one-to-one a possibility? What’s your near-term outlook? What’s your very long-term outlook?
Steven: Yeah, I do think, as crazy as that sounds, a one-to-one is definitely a possibility, and that’s going to require the nominal Dow to really lose a lot of its value going forward over the coming years. So I think that’s how it works itself out, is that gold retains its historical monetary rock as real money. And then as debts start getting paid down and bankruptcies and we get this kind of deflationary environment, which I know is not a popular term today, but I think it’s the ultimate outcome of a fiat-based monetary system where we’ve got all these IOUs out there, I think deflation is the end game, that’s when, in nominal terms, all these markets start coming down and get closer to parity.
Peter: That being said, I just want to stress that we have a current forecast, which is let’s be on gold and the dollar, which even what we’ve just said, people might be surprised about. For gold, for instance, it’s not a straight ride. We’ve got the waves to contend with, and currently there’s a potential at least for a fourth wave.
Steven: Right. In other words, the model we use deals in waves, and in five waves, so to speak, unfold in the direction of the main trend. And so we’ve had this tremendous gold rally, but we’ve just completed the third wave of this five wave move. And so we made a high in October. I think we’re in what’s called a fourth wave, which is a correction against the main trend. I don’t think that correction’s over. In our short-term update we’ve been really good in identifying the short-term moves within gold. 2023, when gold was at 1,815, we rode it all the way up and we identified the top of this third wave on October 17th, the day before the high.
Peter: We had a lot of the kind of sentiment that you get at the top. You had the man on the street suddenly showing an interest. The market being bullish, consensus hit 95, which was a 37-year-high. And you had a sentiment that we like to see, which is, in this case, very bullish.
Steven: Right. So I guess what we’re saying is that we’re in a period of correction in gold. I don’t think this correction is over. It’s probably going to last a little longer and probably take it a little deeper depending upon the pattern that wave four takes. But once the correction’s complete, I think then we go back up and make a new high in gold. So it’s going to be a little bit rough for gold holders, let’s say short to intermediate term, but longer term, I think everything’s going to be fine.
David: So I had a conversation with Pierre Lassonde, the founder of Franco-Nevada about a month ago. And he was suggesting the Dow/gold Ratio at a 1:1, and the two assets meeting at roughly 17,250. What would you see as that long-term price projection for gold, and where could the Dow meet it, in your view?
Steven: Well, it’s tough to say right now because I think there’s a potential for a blowoff move in gold, which Bob Prechter has talked about after we get through this correction period. And if that’s the case, then you’re going to get gold way up there, 15,000, 20,000 an ounce or higher, because that’s how blow-off moves tend to do in the precious metals where you get that fifth wave and it just goes up and up and up.
In terms of the Dow, though, boy, 17,000, it’s optimistic in our view. I think that the downside is going to be much greater than that because we’ve got to get to valuation levels that make sense for people to get back in over a long period of time, even though they won’t want to when we get there. Believe me, they won’t even want to hear the word “stocks,” but I think that’s where we’re going.
Peter: In the valuation chart that we were talking about before, that’s through the bottom of the box. That’s a low number.
Steven: Right.
David: The enthusiasm for stocks is kind of—unprecedented might be the wrong word, but I can’t— Even 1920—
Peter: No. That’s the right word.
David: Yeah. Even 1929, there was limits in terms of the leverage vehicles. You talked about ETFs three times. There’s even four and five times leveraged ETFs.
Peter: It wasn’t anything like this, although there was a lot of leverage on them. You could 90% margin in those days, that’s how we got the 50% rule, but that’s how government operates. They come in with the rule for the bear market that’s already happened. And people find their way around the 50% rule. That’s where all this leverage seeps in through all kinds of pores that you can’t even see until after the market goes down.
David: So kind of a unique dynamic, at least it seems that way to me. The current nominal price for the Dow and S&P seems to somewhat mask the moves in gold. Of course, the ratios unmask that entirely, but it seems like this period is unique if you contrast it with 1929 and 1966 when nominal prices and equities flipped into bear mode, then gold outperformed on a relative basis. Now we have gold outperforming even as equities stretch to new highs. What is different this time?
Steven: Yeah. Well, back then, gold was fixed. It was fixed at 20—was it 20.67 an ounce? Then Roosevelt in ’30—what was it? ’33, I believe. He readjusted it to $35 an ounce. And then it wasn’t until the ’70s where they closed the gold window and then they finally let it freely trade.
So I think one of the reasons that you didn’t have this movement around is simply because you couldn’t. Gold’s price was fixed at a certain amount, and it wasn’t until it became unfixed and freely floated that the dynamics that we have today really started playing out.
David: So you talk about being in a fourth wave for gold, that’s a corrective wave. The fifth wave would be sort of the blow-off. How does silver typically perform in a fifth wave for gold?
Peter: Well, as a matter of fact, I was going to actually bring that up. What we didn’t get a silver— Silver will do better at the very end because it’s the more speculative metal. And it did a little better, I think, probably on a performance basis here, but that’s really good evidence, I think, for it being a third and not a final fifth wave, in my opinion.
Steven: No, that’s a good point. Usually you’ll get a spike in the gold/silver ratio or the silver/gold ratio at major turning points. We really haven’t had that. Silver is the higher beta metal just because it’s a smaller market than gold and a bit less liquid. And so that’s the real key to know that you’re at the end of a significant move in the metals is when silver just takes off and goes vertical. And we had, I’d say, a mini version of that this year, but nothing like we envision when the final high comes down the road at some point.
Peter Kendall
Yeah, keep an eye on that. Silver starts going vertical, you know, A, you’re in a fifth wave, and B, that’s going to end pretty abruptly.
David: I can’t think of a past fifth wave where that gold/silver ratio was sort of stuck in the mud. It has a hard time clearing 80:1 in this current cycle. Ordinarily, you could see it in the 60s, 50s, even lower, one versus the other. So just to reiterate, you’re saying you’ll know you’re in a fifth wave when that gold/silver ratio starts to pick up the pace.
Steven: Yeah. Starts to plunge, right? When silver’s really outperforming gold, that’s a telltale sign you’re in a fifth wave, plus just the structure of the waves themselves will tell you. So we’ll be following it pretty closely, as we always do, but we’re not at that point yet. So we got to get through this correction, which I still think has more to go before we enter this fifth wave, but it will be a wonder to behold in terms of the metals because they’ll really be outperforming everything and it’ll be noticeable.
David: Well, I hope you’re right about this fourth wave correction. Love to see it hit lower numbers. I think establishing a superior cost basis will be meaningful as things play out. In previous bull markets in precious metals, gold as a percentage of global assets under management was close to 5%, currently sits under half a percent. Does that lend credence to the notion that gold remains under-owned?
Peter: Yeah. By contrast, the pension funds have like 85% in equity. So these are the two poles that must flip. They’re set for reversal.
Steven: Right.
Peter: In gold’s case, it should get more promising.
Steven: Right, I agree. If we just get back to an historical level near 5%, which is 12 times where we are right now, I mean, that’s just a huge movement of money into that asset. So that probably is going to be one of the mechanisms as the fifth wave gets going, that’s going to really propel it to the upside.
Peter: Yeah. It was 5% in the ’60s, isn’t that right, Steve?
Steven: Right. Yeah.
Peter: It was set. It was a stable asset, I guess, but it’s kind of remarkable given the potential for appreciation was zilch.
David: Talk to us about the Dow Theory non-confirmation and its importance for the markets more broadly.
Steven: Well, basically every major top throughout history has been attended by a Dow theory where there’s been a divergence between the Dow Jones Industrial Average and then the Dow Jones Transportation Average. And it’s usually the transportation—not always—but it’s usually the transportation average that lags the industrials at the high, sending you a signal that the internal structure of the economy—which, transportation is the leading, or one of the leading, aspects of moving goods and services throughout the economy. When that starts to lag, it’s giving you a hint that economic weakness is coming, and you get this Dow Theory non-confirmation.
We have one right now where the Dow industrials will hit a new all time high, the transports— In fact, I think this is the anniversary maybe, or the one-year anniversary of when they peaked out on November 25th of 2024. So we’ve got this Dow Theory non-confirmation, and yeah, it’s just another technical signal. It’s got a long, long history, which is one of the reasons we like it so much, but it’s just one more technical signal that we put on our ledger here saying, “Hey, you got to pay attention because this is important.”
Peter: To speak to it more broadly, the transports also had a peak in November of 2021. And we go back to 2021 for a host of different markets, particularly speculative markets. As early as January and February of 2021, you had certain of the most speculative issues, IPOs, SPACs happened then, penny stocks, meme stocks, and remember the non-fungible token. All that happened in early 2021, and more tokens came later, but all of the ones that came then just kind of dissolved and all those indexes never got back to where they were. So on a broader basis, this idea of a divergence has been in place for, well, four or five years. That’s a big top, and it tells you that this is going to be a big drop.
David: Again, what I love about Dow Theory, and you hit it on the head, this gives so much historical perspective. Charles Dow, original editor of the Wall Street Journal over a hundred years ago, looking at these trends between financial asset prices and the larger economy. So it just brings some perspective.
Peter: Yeah. Another thing about Dow Theory that I want to interject, is it’s a precursor to the Elliott Wave Principle, in that it has a main trend up and down, and the Elliott Wave is the same way. And I’m sure that wasn’t lost on Elliott. He was a subscriber to a Dow Theory letter. He may have learned that from it. We don’t know. But the main trend switches at the top, at the biggest turn. And we have that in the Elliott Wave Principle as well, and on many different scales of these waves that we talk about. We should now be headed in the opposite direction, so we should see the five wave impulse move on the downside, as opposed to over the course of the bull market, it was always as we moved up and then we would retreat in the three-way pattern. So that’s a big difference that we’re now hopefully turning the corner into.
Steven: And the final reason I like it so much is because people pooh-pooh it. They think it’s an antiquated indicator and they say, “Well, it doesn’t really represent modern day markets now.” And ironically, that’s exactly why we like it, is because no one else does. So various reasons why I think this is an important signal that we’re seeing right here.
David: Okay. So let’s blend modern day markets’ technology with a little bit of historical reflection. Technology has featured prominently in each major supercycle of the past. Is this a period similar to 1835, 1929, 1966?
Peter: Oh, you’ve touched all the magic numbers. Those are what we call— The first one, 1835, is supercycle one. Most people don’t know anything about that market, but it was the Andrew Jackson bull market that lasted up to ’35. And then you actually had a real estate mania after that peak, and then you had the panic of 1837 and a deflationary depression. So then from 1842 on up to 1929, that’s all one wave, we call it supercycle three, and it concludes with a technology peak which involved air flight, television— Radio still wasn’t really a big moneymaker. It had had a mania and it had developed. The golden age of broadcast really started in the 1930s, however.
And then up into the— 1966 is the end of cycle wave three, the middle wave of our long fifth wave of a supercycle, and that brought on— The internet was actually invented then, but then what you get is kind of the invention—as in ’29. You had the invention of the television in ’66 or ’68, I think it might have been. The internet, actually, the first internet message was sent, but what happens is that you get a boom phase in which the technology is adopted and is commercialized, and that shows up in our chart.
David: Yeah. So each of these periods, you’ve got kind of the innovation phase, the experimentation phase, and maybe even a massive CapEx spend, then followed by a bust, and then ultimately the adoption.
So AI has carried market sentiment here in recent years. Revolutionary idea to some. To others, of course, it dates back to the 1950s. This CapEx cycle has been extraordinary—in the trillions of dollars. What can you tell us about past patterns of investment in technology, and in what phases they represent opportunity for investors—and, on the other side, risk as well?
Peter: The opportunity, I guess, is represented by the total investment in probably trillions of dollars. And I think it’s more than by, well, let’s call it a supercycle, a grand supercycle degree, just so much more in terms of investment. Just in doing this, the thing I learned was how these breakthroughs become increasingly complex. They’re like social engineering projects at this point, and they take more time and teamwork. The first constitutional convention of AI was at Dartmouth College in 1956, where it was understood by the academic community, a team of academics, that this technology was possible. But you could do another chart about all its ups and downs over the course of the 50-year period leading to the AI boom, which began in 2022 with ChatGPT. Anyway, that complexity has dawned into this new dot-com mania squared, let’s call it, just a much larger situation, this boom, as well as the development of the technology.
David: So if you’re talking about equities, if you’re talking about technology, in your view, we’re in wave five. Review the wave counts so we have some context again for what that means, the implications and just how important it is.
Peter: Well, let’s see. We have a supercycle that’s within the structure that begins in the turn of, not the last century, the one before that, before 1800, that’s a grand supercycle. Now, within that, there’s a supercycle that begins in 1932. We had wave one up from 1932 to 1937, and then we had a bear market that lasts—not very long, really, some of the bear markets are actually quite short—into ’42, and then wave three is ’42 to 1966, and then you get the decline with, let’s just call it the ’70s. 1974, in nominal terms, we begin the rally. In inflation adjusted terms, it’s 1982 that the rally begins, and that’s wave five, the boom that we’ve all lived through. And it’s been a generation of getting to one period of hyper hype after the other, 2000, 2007. 2000 was a technology peak. 2007 was financial and housing peak. And then the current peak is, again, a technology peak.
David: Could you also include in that technology peak here at the end of a supercycle, maybe a coincidental grand supercycle, also a peak in debt, in government debt. I think, we look at the bond market, we look at spreads, it seems like there’s a lot coming to a head in the debt markets at the same time.
Peter: Yeah. The great enabler of debt was the great bull market. And by the end of it, the government was creating debt to bail— The last fourth wave was 2020, and the government was literally issuing debt to bail out corporate America.
Steven: The debt is untenable. We’ve got— Just the interest on the debt is, what, a trillion dollars a year? That’s not even paying the debt, that’s just paying the interest. I think the total amount of outstanding debt is around 37 trillion now, but that’s just publicly known debt. All the leverage and private equity, private credit, and so forth. I mean, the worldwide notional amounts of outstanding debt are 300 trillion, more, 338 trillion, so it’s unsustainable in the sense that you get to a point where all you’re doing is paying your interest on the debt that’s already outstanding. And it’s taking away from money that would go into other productive aspects of the economy. And so I think we’re at the end of that long road. We thought so prior to this, that we decided, well, gosh, there’s no way we can expand debt even more than we have. And we’re now just stretching that rubber band till it’s so taut and it’s getting ready to break.
Peter: One of the areas where we see it is in the auto loan delinquencies, which have been rising steadily and moving right towards the precipice as far as we’re concerned. What will change people’s attitude about this ongoing— Well, there’s already a crisis in car loans, for instance, subprime car loan delinquencies are higher than they were during 2008 during the Great Recession, so it’s well on its way. And we think as the stock market rolls over and confidence is shaken more broadly, the debt situation— We’ll have a debt deflation that exceeds that of 2008, 2009.
Steven: Right. Even looking at things like corporate bankruptcies, right now we’re I think 12% above the pandemic levels in terms of corporate bankruptcies. We’ve got the highest numbers since 2010, and this is the good times. These are the times where we’re expanding. I mean, can you imagine what that will look like when we start contracting?
Peter: This is what we were talking about divergences before. You have the divergences in the economy itself now, so we’re already exposed more broadly than we have been in the past, certainly than 2000.
David: With an increase in corporate bankruptcies, is it a surprise to you that corporate credit spreads are as tight as they are?
Steven: Yes and no. They’re tight because of liquidity. People are confident right now. And I think that, again, that’s an ephemeral type of mental state that is going to change. And we’re starting to see little hints of it right now. For example, the junk bond corporate spread bottomed in September. Here we are now in November, it hasn’t blown out or anything to the upside. It still remains relatively tight, but you’re starting to see it creep up a little bit higher and higher. In other words, you’re starting to see a widening in that junk bond spread. And that’s a key indicator that we look at all the time. It’s moving in the direction we think it should be moving. It just hasn’t gotten there or hasn’t moved quite as quickly as we thought.
David: We’ve talked about a number of markets. We’ve commented briefly on the dollar. And of course, I think the long-term trend is towards it to move to its intrinsic value, zero. But your short-term views on the dollar, how would those contrast with a long-term terminal decay?
Steven: Yes. There’s the dollar index, which is just the dollar measured against a number of other currencies like the yen and Swiss franc and so forth. And then there’s the broad dollar and its purchasing power. In terms of the dollar index, which we forecast on a short-term basis, I think we’re bottoming. I think we’re getting very close, if we already haven’t put a bottom in. We had a pretty long rise from the 2008 low up to 2022. It traced out what we call an impulse pattern, a five-wave rise. And since September of 2022 we’ve come down in this three-wave correction, and that correction is either over, ended in September, or it’s very close to being over.
And I think we’re going to start the largest rally since the 2022 high. And a lot of it has to do, people don’t realize this, but when you get into a bear market, the dollar actually rises because people need dollars to pay off their debts, so people start selling anything that’s liquid to get into dollars to service the outstanding debts that they have, which kind of pushes the dollar to the upside, so there’s two different dynamics going on. There’s the dollar index, which I think is going to rally. And then there’s just the long, long-term depreciation of the dollar’s purchasing power, which has gone down just about every year since it’s been issued.
Peter: This liquidity question goes to the reason that Steve was mentioning before. We’re going to have an illiquidity boom, and that will affect many things in dollars positively, but not much else as people pursue funds to pay off their debts and to live on.
David: Coming into the year-end, 2025, we are looking at significant inflection points across asset classes, whether it is the equity markets broadly and technology as a subset of that. Cryptocurrency is an expression of a risk asset. And if what you said earlier pans out in 2026, we go from liquidity abundance 2025 to liquidity scarcity in 2026. How would you position a portfolio in light of that kind of a scenario?
Steven: What I would say is what we’ve been saying to our readers, which is: you need to elevate safety to the top of your list. And we’ve been preaching that for a while now, safety, safety, safety. And when I say safety, we’ve been talking about short-term Treasury bills. We’ve been talking about two-year floating rate notes, which are essentially short-term Treasury bills, but they reset their interest rate, not daily like a T-bill would, but on a quarterly basis. And then you also want to own some precious metals. You want to have a portion of your portfolio in gold as a hedge, as a value store. And I think that portfolio will help you as liquidity starts to shrink. And it’s already kind of helping you as it is. I mean, because gold has outperformed the stock market, it has done great. Short-term Treasury bills have outperformed bitcoin, at least this year they have. So I think you’ll be there as we get through this and you’ll have your assets intact so that you can start picking up stuff for pennies on the dollars down the road. And that’s kind of our goal there.
Peter: We’re talking physical gold in a safe place.
David: It’s interesting because you talk about pension funds earlier with an 85% allocation to stocks. I’ve got to assume that their allocation to cash is de minimis. Their allocation to metals is de minimis. It’s like one side of the boat’s fairly heavily weighted. It doesn’t seem like what you’re describing is the most popular of views. We should be, in a more popular sense, long equities, long crypto, long AI, long technology. You’re basically saying, why don’t you shift in the other direction, to the other side of the boat?
Peter: Yes, sir.
Steven: We don’t want to be popular right now. Anything that’s popular we don’t want to be. When you’re a bit of a contrarian— We’re not contrarians just to be contrarians. We’re contrarians because we study history, and we see that through studying history, when things get to an excess—and particularly the excesses we’re seeing today—it pays to be a contrarian. And so that’s where our stance is.
David: I’m 51 years old this year. My dad is 85. And around the dinner table growing up, if he said it once, he said it a thousand times, the majority is always wrong. Again, not contrarian for contrarian’s sake, but again, as a measure of social psychology, as a measure of, as what you would put in terms of socionomics, it is worth watching what the majority of people are doing and thinking just how rational or irrational it is.
Steven: That’s a good way of putting it, just thinking how rational or irrational it is. We would call it non-rational.
David: Well, again, I want to let our listeners know, Elliott Wave has offered a special one-month access to the Financial Forecast, the Theorist, and the Short Term Update for just $11. And again, you can find the link in the show notes or go to Elliottwave.com/david, and really appreciate you both being on the program today. Steve, Peter, appreciate your insights and I encourage our listeners to take advantage of the work that you do, and not just on a monthly basis, but on a weekly, even daily basis.
Peter: Thank you for having us.
Steven: Thanks. We really appreciate being here.
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You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany and our guests today, Steven Hochberg and Peter Kendall of Elliott Wave International. You can find us at mcalvany.com or call us at 800-525-9556.
This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.
