How This Recovery Stacks Up

Monday, May 08, 2006 | 08:30 AM

There is a very interesting 3 part series at Ticker Sense; It is a collection of charts comparing this market move off of the lows with prior such bull markets.

It is titled "How This Recovery Stacks Up" and its must reading.

Part I

Part II

Part III    

I have cherry picked a few charts, which point out some of the odder aspects of this period:  weak dollar, strong corporate profits at the top of the historical range, a compressing P/E far more than previous periods, and a white hot rally in gold:

click for larger charts:

Dollar_index_1

Corporate_profits

Pe_ratio_1


Gold_1


What's so fascinating is how truly unusual some aspects of this cycle are relative to the period since 1960. While other charts in the series show some aspects of this recovery as typical, I have highlighted the peculiar data series.

Given the unusual backdrop:  A 78% drop in the Nasdaq, and interest rates cut to 46 year lows (1% Fed Funds Rate), its not surprising that some aspects of this cycle has been rather odd . . . 

Monday, May 08, 2006 | 08:30 AM | Permalink | Comments (10) | TrackBack (0)
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Comments

Agreed, the unusual nature of this recovery may skew things but some things seem very strange indeed. The gold spike in 1975 was probably not related to the recovery alone and the fact that none of the other recent recoveries emulated that spike suggests it could have been an anomaly. Except of course there's now.

I refer to several sources to try and understand precious metals movements including John Hussman's work (http://hussmanfunds.com/html/gold.htm) and while an argument for higher gold could certainly be made for the current trend the scenario for a powerful 5-year gold market (and counting) just doesn't seem to be present, at least as far as my rather limited vision goes. Hussman comments for example that:

"...if we're looking for a rally in gold, we're really looking for 1) World inflation, particularly in the U.S., and 2) falling long term Treasury bond yields. This combination is most frequently seen early in a recession. ...

...In the rare instances when 1) The rate of inflation has been higher than 6 months earlier, 2) Treasury bond yields have been lower than 6 months earlier, 3) the NAPM Purchasing Managers Index has been below 50, and 4) the Gold/XAU ratio has been above 4.0, the XAU has soared at an astounding rate of 123.63% annualized. In contrast, when none of these have been true, the XAU has plunged at -53.21% annualized."

So is it simply a mania we're seeing or is the precious metals market predicting something really wild is coming or is it just something we can't see yet? Got me.

Posted by: RW | May 8, 2006 10:05:39 AM

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