Source: Monthly Chart Portfolio of Global Markets, Bank of America Merrill Lynch

 

 

It seems that every 30 years or so, markets make what can be described as a “Generational Low.” We can define this as a capitulatory bottom, one that might be caused by a variety of factors, but usually includes some combination of fear and panic in the mix.

This equity market low point is likely to be unchallenged over the next 10-20 or so years. After that point, the combination of population growth, technological gains and of course, inflation, means that we will are highly unlikely to ever see stock indices at those prices again.

Towards that end, have a look at the chart above, courtesy of the technical team at Bank of America Merrill Lynch. “History may not repeat, but it rhymes” goes a quote which is often credited to but has never been verified as written by Mark Twain.

Continues here

Category: Markets, Psychology, 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.

6 Responses to “Comparing Generational Lows: 1942, 1974 & 2009”

  1. MayorQuimby says:

    The extent to which inflation can be forced into the system is fixed by real world economic activity and is not arbitrary nor is it controllable by the banking sector or DC. They will push…HARD…but that is all they can do – and if they do not succeed then a repeat credit crunch, as unlikely as that may seem today, is very much possible. See Mr. Gross’ commentary today.

    At any rate – if people looked at the real world around them (and not just the NYC area), they would see more clearly where things are headed.

  2. Bruman says:

    It would be interesting to see this chart with the 2002 lows set as the “generational low.” After all, before 2008, that was the generational low we thought we were recovering from. Perhaps it will change the message of the chart, perhaps not.

  3. Willy2 says:

    Interesting chart. But it suggests the stockmarket is going to be roaring higher. I still use the (early) 1930s analogy. And I don’t think we have seen the “Generational low” yet. It’s still up ahead for the US.

  4. rd says:

    I have been scratching my head about how relevant the specifics of the 1930s and 1970s markets are today.

    1929-1932 was a massive deflationary downwave. Pretty much everything was inflationary after that. 1942 started the WW II inflation with very large debt increases.

    1974 through the early 80s was a massive inflationary wave on a similar scale that 1929-32 was deflationary.

    At present inflation is low and annual deficits are declining. As a result, the real inflation-adjusted prices of the stock market have gone up at a much higher rate than the 1970s and even the 1930s and 1940s. We are seeing that effect on the traditional valuation measures like CAPE, Q, % or GDP etc.

    So it is still not clear to me that 2009 rhymes with 1974 or 1942. A loss of confidence in the stock market like the 1930s and 1970s that takes valuation measures down to the levels seen in that period would result in a low on speaking terms with the 2009 bottom.

  5. Moss says:

    It will be interesting to see how things play out from here. New Fed Chair, low inflation, less private credit demand, demographic shifts, climate change, legalization of pot, ACA, Energy Conservation. History may indeed rhyme but a huge wild card for me is the fact that the US has a high possibility of being Energy Independent. I never thought that was possible and the realities of it are just starting to spread throughout the Economy. Oil may never again be cheap but the petro dollar economy is changing.

  6. bear_in_mind says:

    While lining-up the respective charts is interesting, I don’t know that the respective macroeconomic factors line-up all that cleanly. IMHO, there’s lots of differing economic and demographic factors globally from the 1920′s and 30′s and 1970′s and 80′s to infer today’s market will respond in such a similar fashion.

    As for projecting that the 2009 low will hold as the bottom in this secular bear cycle, I think that does hold some merit given that this decline was accompanied by a systemic financial crisis which is unlikely to recur in the foreseeable future.

    What I do believe holds the potential for bolstering U.S. markets is that we possess substantially more knowledge today about natural resources, science, energy, medicine, and production that properly applied could break through the median-income quicksand the American middle-class workforce has been mired in for two-plus generations. To do so, we as nation have to figure out how (and where) we want to invest our blood and treasure.

    If our highest civic value is to promote monolithic wealth amongst the top 5000 households in America, we’ll remain ‘stuck’ and resign ever more American generations to grinding underemployment, wasted potential and impoverishment. However, a return to redistributive tax policies that freed working-class American families from serfdom could craft a profoundly healthier, vibrant and robust country in the decades ahead.

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