50 Years of Market Swings

GREAT chart of history. Please note the trend line is not logarithmic. Thus, the line takes on the appearance of trending straight up as gains compound.

Had a log chart been presented, the line would have appeared solid and predictable, except for 1987 and 1990-y2k where it trended significantly ABOVE trend.

The bottoms are all rock solid since 1985, except for 1987, 1992, and y2k. Two of the slightly deeper dips were in response to way out of control market rises .. much higher than the one just past, in comparison.

The 1992 dip coincided with the 1st Iraq invasion. The market also dipped excessively before and around the 2nd invasion. That is explainable variance, as far as I am concerned.

Thus, predictions about falls below the current level are out of sync with history. Why is this dip different? Answer .. it’s not. Thus, we are at a bottom and up is the next direction. This will eventually be followed by another dip for a new reason and another recovery. And so on. And so on. And so on.

Remember,

The stock market is a mostly closed system with regards to what is traded, and an open system with regard to the money supply. Since the money supply grows constantly and the trading supply remains mostly constant, the net effect is a rising stock market over time.

Excessive monetary growth, usually in the form of out of control credit, causes big upward spikes. New, overseas investors also add cash to the money supply side. Downward corrections appear to have a safety valve that prevents a new floor from being created.

Wall street types, economists, pundits, and the like need to make is appear more complicated and mysterious because their jobs would not exist if everyone saw it as an extremely simple supply and demand equation.

Cash need somewhere to go and stability invites risk. Cash can temporarily disappear in a flash, but will always reappear when it looks safe because of the need for people to seek higher returns. These people bring in more people, causing markets to go up. More people enter after that. Each wave brings in higher prices for equities.

A general increase in the money supply raises the floor for equities, creating the long term upward trend of the market, in general.

Eventually, equities rise in value too high for the reason of the day, causing prices to fall to the floor, or there about.

And so it goes.

I just discovered I was born in a bear market…..that explains a lot

Ross,

Thank you for being proof positive of someone enamored with complicated mumbo jumbo. In spite of being presented with a simple explanation for the stock market, you would rather reject it in favor of mysterious and complicated influences … all of which are different each time.

When I sell at a top, it is people like you who probably buy from me.

Thank you for your support, dumbass.

Carmen,

If you are an investor who does not understand what I wrote, then I am sorry for you. You are at the mercy of whoever makes sense to you at the time. Since this decision will probably be based on how comfortable you feel with that person, good luck. A lot of predators are very likable when you have something they want. Maybe you should seriously consider Bank CDs for your savings.

If you are an investment manager who prefers a financial market filled with complication and contrary explanations, then this level of clarity would be very bad for business. Attacking my model is an understandable option since it offers the potential for removing sheep to fleece from the investment customer lists.

cinefoz, I can’t decide if you are delusional or an attention whore.

Or both.

You’ve already used “idiot,” “dumbass,” and “sheep” today, so please do try to be creative with your namecalling.

To paraphrase crispyandcole at Calculated Risk:

cinefoz has called more bottoms than Brittney and Paris combined.

cinefoz,

I am upset that you won’t be my anonymous internet friend. I was wondering, though, if you would manage my money, since you continually tout how “simple” the market really is and, like I mentioned before, have an uncanny knack for selling every top and buying every bottom.

Abrasive and unknowledgable and advertises both…hmmm…who does that sound like?

Obvious, you are pretty good at making up facts that don’t exist anywhere else. You’re partly complimentary and partly challenging me to ‘prove myself’. And maybe you want to be my friend or business partner. But you’re still the expert because the market isn’t ‘simple’. You’re glib. You have quite a profile there, boy.

cinefoz,

Whatever we think, however detailed is our analysis and planning before trading, it pays to heed J.P. Morgan admonition about the market:

“It will fluctuate”

Since the direction of the fluctuation CANNOT be known in advance, being long only or short only isn’t a convincing position.

Call me a coward, but since the market is much bigger than moi, I’ll always entertain (and plan for) the possibility of a brutal change in direction.

Stuff happens…and the big fan is always pointed in OUR direction.

Why start in 1950? If you want to have the big picture of the stock market, you ought to start before 1929.

Cinefoz

We are navigating uncharted waters, your theorum of nominal equity increase based on monetary debasement only applies in an inflationary environment, monetary inflation by all indications has reached saturation based on the ability to force new money into the economy, even the stim-u-less package is merely an advance on next years tax rebate as determined by some new code. There is a distinct possibility of deflation moving forward that the prudent may wish to not ignore.

Very negative outlook:

http://www.guardian.co.uk/commentisfree/2008/feb/18/northernrock.alistairdarling

“How perceptions of the US have changed: a country living beyond its means, dependent on large helpings of Asian credit, characterised by huge inequalities, its great financial institutions guilty of huge folly…”

Hey techy,

You may be long gone, who knows?
Your scenario is only part of th problem IMO.

The main problem for me is 2 fold: High Energy and low wages. Now throw in collapsing credit. The consumer is getting crushed. This does not induce spending. Kind of Biflation in my mind.

inflation in energy and deflation in discretionaries. I think most commodities have peaked and service/discretionaries are on a downward trend.

So I think there is pain going forward for most companies. Mine is definitely seeing changes in people’s ability to come up with cash and are having to cut back. That makes me cut back. As for investments, I’ll buy on the way up and not try and time the market. Way too much noise right now.

I guess for you, It’s a question of doing some research on the companies you like and see how they fit your portfolio going forward. How are they going to be effected by the elephants in the room?

Good luck.

S&P 500: Total and Inflation-Adjusted Historical Returns at ETF Investing.

Quoting past returns is usually done in a fantasy fashion. They usually don’t mention:

• Inflation
• Dividends (decline of)
• Trading expenses
• Taxes

Other noticeables impacting future returns:

• Privatization of public corporations
• Increase in private equity firms
• Impact of stock options
• Excessive executive compensation
• Shareholder dilution
• Increased risks and decline of our financial institutions

Cinefoz ,

don’t take the insults too personally , being the only Bull on this site is lonely and difficult

cinefoz,
Don’t listen to jj. Really do take the insults personally. There are other bulls on this site, just none as smug or cocksure. Do you realize you are just as shrill as MS?

Thus, predictions about falls below the current level are out of sync with history. Why is this dip different? Answer .. it’s not. Thus, we are at a bottom and up is the next direction.
——

Okay, I’m going to simplify things even more than that. I took a bent ruler (to account for inflation and other effects) and laid it on the chart before deregulation made things crazy greedy and wealth concentrating (1995) and looked at where that number should be when the adults arrive to chastise and leash up the children running amok in the markets, putting their gooey fingers all over the furniture and in each other’s hair and stuff. It looks like 800 or so, give or take. And the current number is a lot higher than that. So, I’ll go short, just to keep the pot interesting. (Not on energy, tho… until we show global long-term recessionary signs)

Our current economic system is one where the skinny kids at the table are borrowing money to buy candy for the fat kid at the end of the table. How much longer will that last? China and India are building their own tables and won’t need to sit at ours much longer.