I meant to get to this from last week — but given that its a 140 year chart, I guess one week won’t matter much (via Ron Griess of The Chart Store):

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click for bigger graph
6-19-09-secular-cycles-1

Category: Inflation, Short Selling, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Monthly S&P500 Inflation Adjusted”

  1. WaveCatcher says:

    Another awesome chart from the Chartstore.com!

    It appears that we may have at least 54 more months of pain if we are to match the shortest of the previous 4 Secular Bear Markets.

    What will you be doing in 2013? I hope to be riding the new Secular Bull Market!

  2. thedocument says:

    Your notes on the 1930s bear market look fishy because you calculated the drawdown to the end of the bear rather than to the low point. That bear saw a 90% nominal loss at its worst point. Also, while the current bear has posted a loss comparable to the others, the timespan is considerably shorter. Are we in a period of faster cycles or larger drawdowns? Only time will tell.

  3. Jdamon33 says:

    Now, that is a chart even a non-chartist like me can love. I mean, how telling is it that we have fallen 65% and the worst bear market saw a 70% decrease. I am still not long and strong as I think we have one more leg down, but after that one I will get long. I can see another 4 years of pain /sideways action until the next secular bull.

  4. packman says:

    For what it’s worth – IMO while such studies are interesting – there tends to be an indication that past behavior will be a predictor of future behavior. But that’s a dangerous assumption, because the underlying fundamentals are shifting, and many of the shifts are not cyclical.

    The best example is debt, e.g. see these charts:

    http://img190.imageshack.us/img190/9449/graphmortgagedebtpercen.jpg
    http://img190.imageshack.us/img190/5350/graphsectorldebtpercent.jpg
    http://img190.imageshack.us/img190/7793/graphtotaldebtpercentofn.jpg

    Additionally what comes to mind is taxes – which generally are a one-way shift in the long term.

    In general, what I’m saying is that this may finally be the black swan bear market that we simply never exit from, at least in terms of what’s usually thought of as as an “exit”.

  5. packman says:

    I meant “there tends to be an implication”, not indication.

  6. Can anyone tell me what dirt Ron Insana has on the crew at CNBC? Any why should anyone believe him?

  7. DL says:

    Obama will do his best to keep the economy pumped up between now and 2012. The SPX will probably get to 1200 during his first term.

    But the secular bear market lives on.

  8. ben22 says:

    packman,

    some prominent wave analysts are calling for a 100 year bear market after 200 years of generally rising stock prices. You could be on to something.

  9. Bruce N Tennessee says:

    This is exactly what the Economist was writing about years ago in the article I’ve referenced before called ” The Investment Cycle”….their take home message is that you’d be better off to only be in stocks about 50% of your lifetime..and the determining factor was whether global liquidity was increasing or not…increasing global liquidity = good for stocks…

    Are we having increasing global liquidity now? Or not…..

  10. gordo365 says:

    Does anyone have a chart of the Roman stock market near the end of the Roman empire?

    Seriously – our global industrial dominance is waning, our people are loaded with debt and have declining earning power, and 1/3 are obese (read undisciplined or lazy), and our retiring boomer parents have spent more than earned for the last 30 years and are handing us the bill as the move into the guest room.

    Any chance US market has already reached it’s ultimate top?

  11. HCF says:

    @ Calvin Jones:
    > Can anyone tell me what dirt Ron Insana has on the crew at CNBC? Any why should anyone believe him?

    Because he is bald headed, white dude with glasses! Anyone in that demographic MUST know what he’s talking about in regards to finance and economics!

    =)

    HCF

  12. ben22 says:

    gordo,

    I have been looking for that chart but have failed so far. If I can find it I will post it here.

  13. Steve Barry says:

    I calculate Total Credit per GDP at 375% as of 3/31/09. Until proven otherwise, I assume that is a modern day record…it’s credit on steroids.

  14. VennData says:

    Such negativity…

    …in response to some of the innuendo above, I’d say American obesity is already priced into the market.

  15. DL says:

    “Credit on steroids”.

    Yes. But in addition to steroids, the patient can take growth hormone and amphetamine.

    (I.O.W., Obama can try to pump up the economy even more).

  16. Mannwich says:

    @DL: O can try. Doesn’t mean it will “work”. Beware the law of unintended consequences.

  17. steve from virginia says:

    I noticed that the inflatiion- adjusted high for the S&p 500 took place in 1998. Coincidently, the lowest trend price for crude oil (since the embargo of 1973 and the domestic peak in production in 1970) was $12 a barrel in … 1998.

    In the practical sense, by the means of the market, in which price measures production (supply) relative to demand, Peak Oil took place in 1998. Peak stock market took place then, too. Was it fun?

    The notion that the S&P is going to recover in 100 months or 200 months … or 20,000 months … simply does not compute. Energy prices have multiplied by 500% since 1998. Even so, oil measured by equivalent labor is tremendously cheap. Equilibrium between oil labor and other forms of labor makes oil unaffordable. We are at the beginning of this pricing paradigm … and at the end of the industrialization paradigm.

    Physical peak in conventional crude production took place in 2005 (Matt Simmons). The peak in unconventional physical production including nat- gas liquids, refinery cuts, biofuels, oil and tar sands output, etc. was last year. There is nowhere to go but down …

    And down and down and down. Without extremely cheap oil, industry is a dead duck!

    I we as a (human) race cannot figure out IMMEDIATELY how we can all live comfortably in the 19th century, we will all wind up in the 14th century. Extinction looms, people, time to remove heads from sand.

  18. Christopher says:

    Another 4-5 years to go….those red arrows delineate a rather clear baseline to ~400 to these amateur eyes.

    Any way I look at it……..that chart is scary as hell when put in to the context of a massive debt bubble, and apparently….the same old crony incompetent financial leadership of the GWB days.

    Oh yeah…..we’re fucked.

  19. hr says:

    Now consider the effect of taxes.

    Now consider the effects of taxes on INFLATED (illusory) gains!!

    And if it is in a 401k, all withdrawals are taxed at ordinary income tax rates, 28, 33, 35 percent rates (2009), NOT at the lower long-term cap gains rates.

    Now imagine if you bought the S&P at the nominal 106 in 1982, and held until today’s close at 919, for a gain on 813 in the S&P (919-106=813). Taxed at 33%, that is 268 (813 x 33%) to the government.

    670 (inflation adjusted S&P from the supplied chart) minus 268 in nominal taxes (calculated above) brings you down to 402 in the S&P, AFTER TAX AFTER INFLATION.

    So, from the LOW of 222 (from the supplied chart) in August 1982 to today at 402 (after tax AND after inflation) you have an 81% gain. Over 27 years that is a THREE PERCENT GAIN STARTING FROM A BEAR MARKET LOW.

    Your compounded gain would be even LESS!!

  20. hr says:

    Oh yes, I forgot to add dividends, and transaction costs. And bailouts and increased deficits and future liabilities also . . . .

  21. willid3 says:

    @gordo. there is a lot of evidence that one of the major causes of the collapse of the Roman empire was long persistent drought. and considering the age, that was probably fatal. we appear to be heading into another time where drought is starting to gain steam. but we might be able to weather (pun intended) better

  22. ben22 says:

    hr,

    I understand your point, and it is a good one, but that is not exactly accurate when you are talking about the tax rates above. In our marginal system you aren’t paying the tax all at those specific rates, and the average annual w/d from a 401k is not going to be 33%. You need over 208k in taxable income as a married couple before you even trigger tax at 33%.

    To your point though, this is why it is so important for people that qualify to utilize things like Roth IRA, or perhaps a Roth 401k (which don’t have the income restriction or regular Roth’s) if you are fortunate to work at a company that offers one. Also, roll the 401k to an IRA when you retire or separate employment. More investment options, more control, and you can control the tax w/h whereas a 401k requires a 20% Fed w/h.

    I’d say to look at muni’s for tax purposes but I wouldn’t suggest buying muni’s to anybody right now.

  23. ben22 says:

    I meant

    (which don’t have the income restriction like on regular Roth’s)

  24. Christopher says:

    This Beer and BBQ amateur is calling it….right here and now.

    S&P500 hits 400 some time before 12/31/10.

    You can stack that up next to my 50 Yen prediction for 2009.

    Cheers.

  25. packman says:

    gordo365 Says:
    “Any chance US market has already reached it’s ultimate top?”

    I would say there’s a very good chance it has, in inflation-adjusted terms at least.

    If it has in nominal terms – then better buy ammo, since that means we’ll probably be having a revolution within the next 10-15 years.

  26. packman says:

    gordo365 Says:
    “Any chance US market has already reached it’s ultimate top?”

    I would say there’s a very good chance it has, in inflation-adjusted terms at least.

    If it has in nominal terms – then better buy ammo, since that means we’ll probably be having a revolution within the next 10-15 years.

  27. matt says:

    ben22:

    It seems to me that munis have been hot lately. Does Bill Gross smell another bailout?

  28. DMR says:

    Interestingly, no L shaped recoveries in the inflation adjusted chart.

  29. hr says:

    ben22,

    Don’t forget state taxes either.

    “In our marginal system you aren’t paying the tax all at those specific rates”. While technically true, when you withdraw money from a 401k, wouldn’t the marginal tax rate on that withdrawal be figured as being the last dollar taxed (at the top rate)?

    My main point: Withdrawals from 401ks are taxed at ORDINARY income tax rates, not preferrred capital gains taxes no matter what, or how long, they were invested in. And this should be factored into the story that BR posted.

    Therefore investing in a 401k is a LONG-term bet on the future direction of tax rates.

    Gentlemen (and ladies), make your bets!!

  30. ben22 says:

    hr says:

    While technically true, when you withdraw money from a 401k, wouldn’t the marginal tax rate on that withdrawal be figured as being the last dollar taxed (at the top rate)?

    This is not how it works no. You are correct in saying that 401ks are always taxed at ordinary income but again, we have a marginal system so some could be taxed at 10%, some at 15%, it does not work out that they are automatically taxed at your top marginal rate, that is incorrect. Am I misunderstanding what you were saying? This was my point about using other vehicles such as the Roth IRA or Roth 401k, if you use them and then take distributions properly you have much control over your tax liability during retirement. I might also add that in 2010 there are some special rules about converting IRA’s to Roth IRA’s where you can spread the tax liability out over 2 years and there is not an income restriction to be able to do so.

    If you really want to get technical, where people really start to get burned with the 401k is at age 70 1/2 especially if they don’t need the money. You take your RMD or you pay a monster tax penalty. Further, look at IRD rules when the IRA/401k owner passes and the money is inherited by someone other than the spouse. There are some estate planning tools you can use to offset these tax burdens but most people don’t know how to do it.

    I would also suggest looking at long term studies of tax deferred accounts vs. taxable investments or accounts contributed to on an after tax basis such as the Roth IRA. Tax deferred accounts typically win out in the end. To make your study complete you would also need to factor in things such as the tax deduction one recieves for making pre-tax contributions to q-plans as well as any employer match or profit sharing they get for participation.