Astonishing!
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click for truly ginormous chart
Source: Value Square Asset Management, Yale University
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Was S&P around in 1825? I did not know that . . .
Consumer Credit outstanding fell $14.8b in Sept seasonally adjusted, almost $5b more than expected and marks the 11th month in the past 12 of declines. At $2.456T outstanding, it is 4.9% below the record high in July '08. After a flat reading in Aug, (didn't fall b/c of the CARS program), non revolving debt outstanding fell by $4.9B. Revolving (mostly credit cards) balances outstanding fell by $9.9B. To fully put into perspective today's data, look at the current level of consumer credit (doesn't include mortgages, the biggest chunk of consumer credit) relative to GDP. As of Q3, it totaled 17.2%...
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November 26th, 2008 at 11:48 am
if that’s a bell curve in the making, looks like the skew is toward negative returns in the future!
November 26th, 2008 at 11:51 am
very, very cool.
November 26th, 2008 at 12:00 pm
that is quite the slap in the face
November 26th, 2008 at 12:03 pm
Interesting chart. The skew to the right raises questions, such as why?
A) Greed is stronger than fear.
B) The numbers are not adjusted for inflation
C) It reflects the Growth Stage of our nation, and may now be entering the Decline Stage
D) The numbers are bogus because the pre-1957 data for the S&P must be estimated.
E) All of the above.
November 26th, 2008 at 12:09 pm
2008 isn’t over yet. My crystal ball is broken, last week I felt like I knew where the market was going, this week it’s a coin toss.
Posted on Barry’s “stuck on a train” post from last Tuesday:
“Big funds/hedges have plenty of puts on, low market volume doesn’t take much to move it, they’ll run it down until the end of the week, cash out of their puts then rush in and buy up the market.”
Must remind myself that it’s just as likely I was lucky as it is that I was “right” and not get over-confident. We still need high 900s to get back to the early Nov “Obama rally” level, which still only puts us slightly higher than the early October “crash” after a downward trend all year. Or, in another context, we’re still well below Buffet’s “buy” call.
November 26th, 2008 at 12:19 pm
This post doesn’t fit exactly but I’ve got a new strategy and was hoping I could get some opinions. With the US Oil Royalty trusts paying high dividends I was thinking of buying 4-5 names to collect the dividends and put stop loss orders on them in case they go bad.
This is also a play on the dollar weakening going forward.
What am I missing?
November 26th, 2008 at 12:25 pm
Is that a bell curve or is that a middle finger?
November 26th, 2008 at 12:31 pm
no it wasn’t… reconstructed index based on limited info. useless
year ain’t over yet.
November 26th, 2008 at 12:34 pm
Barry, the S&P 500 Index was used from 1957 onwards and its predecessor S&P Index for the period from 1923 to 1957. The data prior to that was computed by William Goetzmann, Roger Ibbotson et al. Source: “A new historical database for the NYSE 1815 to 1925: Performance and predictability”, Journal of Financial Markets, Volume 4, Issue 1, January 2001, Pages 1-32.
http://www.investmentpostcards.com
November 26th, 2008 at 12:50 pm
Looks like a pretty normal distribution to me. If they used smaller bins it would likely smooth out the series and possibly remove whatever slight right skew currently appears. Central Limit Theorem at work!
November 26th, 2008 at 1:05 pm
Those who have some guts and conviction can pick up some QID for less than $76 right now.
November 26th, 2008 at 1:10 pm
Already picked more up a short time ago, adding to my position. Same with SRS.
November 26th, 2008 at 1:29 pm
Thank you for this chart. I am not often impressed, but this chart is amazing. The implications are staggering in countless ways. I mean drop dead amazing.
The market return is basically a random event. The stock market is a measure of the economy and various economic institutions. This is incontrovertible evidence of the randomness of the economy in any given year, from the point of it being predictable.
It skewers the right wing assertion that investing Social Security funds in the market is a good idea since, over time, the amount returned would be zero, if you lived long enough. The market is closer to a casino, but probably more fair.
It supports technical analysis to a degree since it supports the concept of the market as a process, thus you have an edge if you use it correctly and a random event doesn’t slap you in the face with a big fish. Over time it is a fair game … idiots and criminals eventually cancel each other out. If you can be right only a few percent more than you are wrong, you win.
Fundamental analysis also gives you an edge, but consistent business logic isn’t going to help over time because randomness and normal variation will create an entropy effect. New random factors will always screw up your best analysis.
If it travels out to a tail, over time you can expect it to travel towards the mean. Then go in the other direction eventually. As I said, SPC is the new TA.
Your best strategy is to just be a little bit clever and ignore the big score. Buy the dips and be patient if need be.
November 26th, 2008 at 1:41 pm
Barry,
Why come (southern term) it is that when I go to the main website I miss certain threads that have been posted? This thread for instance is only available to me once I get to the website and then update once I am here. Anyone else have that problem? Or is that what is intended?
November 26th, 2008 at 2:20 pm
I was thinking that this graph indicates the increasing likelihood that we see a year-end rally of fairly substantial proportions. The fact that the market rallied in the face of the durables number is bullish. I expect to see a fade into the holiday here – look, there is a big safety trade going on in Treasuries after the bombing news. Another chance to get short the long bonds here…
November 26th, 2008 at 2:35 pm
Guys, you do what you want – but most double short charts look like a big head + shoulders here, and 840 has held as support rather well, so this is not a good risk:reward from my humble point of view.
November 26th, 2008 at 2:55 pm
Bruce N: I’ve been having the same problem for about a week.
November 26th, 2008 at 2:59 pm
Jopo,
You’ll have to remember that the +0 to +10 is going to be skewed due to the positive inflation bias post-1913. You will pretty much always have a positive bias.
More like I’d say that after a year like 2008, we’re due for a serious snap-back unless we’re more like 1930/1931 and not 1931/1932. Look for the trend, it’s there. Most very bad years are followed by very good years.
Chuck Ponzi
November 26th, 2008 at 3:03 pm
Well said Chuck Ponzi. That chart tells me that, statistically, it’s quite risky to be bearish at this point. But one never knows does one.
November 26th, 2008 at 4:21 pm
Regarding the positive skew — I chalk that up to the fact that there is no such thing as negative dividends, and the positive dividends add an extra oomph to the right-side og the distribution. While decreasing the dividend will also drop the stock price, cutting the dividend tends to be the final actions taken by a company, exactly due to the impact on the stock price.
I found it interesting to retrace the year-to-year returns from 1929-1939 on this “synthesized” chart. If one treats 2008 as an analog to 1929, then we should have some better years ahead — AFTER we get past the analog to 1931, which, using a little Kentucky windage, I guesstimate at being down about -80% to -90% and occurring around 2010. THAT would go a ways toward rounding out this distribution!
And then there is the analog to 1937…
Thankfully, this is a methodology that has no validity, based on synthesized data and an invalid assumption that the future tends to strongly follow the past, so the only place it could possibly utilized is by economists and government planners.
November 26th, 2008 at 5:11 pm
Howard published this chart a month ago. He attributes it to Canaccord:
“Take a look at this fantastic chart created by my friend Colin who runs internet research at Canaccord”
http://howardlindzon.com/?p=3917
November 26th, 2008 at 10:09 pm
I guess the most shocking part is after almost 200 years of supposed progress we see what we can accomplish in 2002 and 2008. You would think that after all that time, our money management would have learned to moderate the downside. It appears we have only learned how to exacerbate it
November 27th, 2008 at 9:19 am
Not calling a bottom here per se–nor discounting some of the points made above regarding the validity of the data [imputed etc], but what this screams to me is what I consider to be perhaps the most powerful force in the known [financial] universe… ‘regression to the mean’. It also fits nicely with the late great Sir John Templeton’s maxim “buy at the point of maximal pessimism”.
good luck