50 Years of Market Swings
Cool interactive graph, via Fortune
Monday, February 18, 2008 | 10:00 AM | Permalink
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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.
Posted by: cinefoz | Feb 18, 2008 10:20:46 AM
Interesting chart but it has no meaning even in semilog.
It would be better in semilog adjusted for inflation.
In Dow terms, 1966 thru 1982 you lost 2/3rds of what you thought was money.
Posted by: Ross | Feb 18, 2008 10:38:35 AM
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.
Posted by: cinefoz | Feb 18, 2008 10:38:55 AM
I just discovered I was born in a bear market.....that explains a lot
Posted by: DavidB | Feb 18, 2008 10:42:36 AM
I just discovered I was born in a bear market.....that explains a lot
Posted by: DavidB | Feb 18, 2008 10:44:25 AM
I hereby dub Cinofoz nominalman. Convert your dollars into Zimbabwe whatevers and watch them double next week.
Grandpap was a baker in Munchen during Weimar. He was a trillionaire.
"timing isn't everything, it's the only thing."
Posted by: Ross | Feb 18, 2008 10:48:58 AM
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.
Posted by: cinefoz | Feb 18, 2008 11:01:32 AM
It's said above:
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.
--
I don't follow. But I'm not sure I really care.
Posted by: Carmen | Feb 18, 2008 11:23:07 AM
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.
Posted by: cinefoz | Feb 18, 2008 11:33:04 AM
Stupidity isn't a crime. But stupidity coupled with pretentiousness must be at least a misdemeanor.
Posted by: Al Czervik | Feb 18, 2008 11:53:22 AM
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.
Posted by: Mr. Obvious | Feb 18, 2008 12:01:35 PM
Mr Obvious,
OK, dipshit. Since you asked.
I have decided about you, and I did it long ago. And I am sure of what I decided. You're just an abrasive person who doesn't know shit, and feels the need to advertise both.
Posted by: cinefoz | Feb 18, 2008 12:09:17 PM
To paraphrase crispyandcole at Calculated Risk:
cinefoz has called more bottoms than Brittney and Paris combined.
Posted by: HaHaHerman | Feb 18, 2008 12:16:43 PM
Cinefoz,
Being called a dumbass by you I take as a compliment.
You are either Ben Stein with potty mouth or Kudlow off his meds.
I too am currently long but you're starting to scare me son.
I'm long and could be wrong but at least I'll admit the possibility.
Posted by: Ross | Feb 18, 2008 12:37:09 PM
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?
Posted by: Mr. Obvious | Feb 18, 2008 12:47:18 PM
Cinefoz is Liebniz....
Posted by: donna | Feb 18, 2008 12:59:49 PM
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.
Posted by: cinefoz | Feb 18, 2008 1:01:05 PM
Stupidity isn't a crime. But stupidity coupled with pretentiousness must be at least a misdemeanor.
Posted by: Al Czervik | Feb 18, 2008 11:53:22 AM
___________
I believe the actual charge would be Pretentious Intellectual Buggery.
Posted by: Marcus Aurelius | Feb 18, 2008 1:13:23 PM
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.
Posted by: Francois | Feb 18, 2008 1:23:07 PM
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.
Posted by: Francois | Feb 18, 2008 1:24:35 PM
Why start in 1950? If you want to have the big picture of the stock market, you ought to start before 1929.
Posted by: Steelduck | Feb 18, 2008 1:56:41 PM
I'm still a bear at this point in time: the consumer is not going to come out of this downturn for awhile, the dollare will likely get a stronger rather than weaker (there goes our export advantage), and banks and other corporations are going to be writing-off still more bad debt... How can the fed really do anything but inflate? Which means terrible markets - not unless my memory serves me wrong and the market didn't suck back in the late 70's when inflation was on a tear...?
Posted by: JustinTheSkeptic | Feb 18, 2008 2:00:06 PM
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.
Posted by: Stormrunner | Feb 18, 2008 2:10:32 PM
justin.
higher inflation but terrible markets?
i thought inflation will also increase the profits of companies.....leading to higher price of stocks..
and also lower interest rate, but high inflation will encourage risky investment like stock market, leading to new highs??
i think japan had deflation problem, right?
Posted by: techy | Feb 18, 2008 2:14:47 PM
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..."
Posted by: Scram | Feb 18, 2008 2:17:33 PM
