Scariest chart I have seen lately.

[Z00]

The Dow today compared to 1928-1929.
Are you prepared for Jan 14th? next year?

chart.png (60.33 KiB) Viewed 1675 times

[natsb88]

Some analysis: http://www.mcoscillator.com/learning_ce ... 1929_analo

[68Camaro]

The Dow today compared to 1928-1929.
Are you prepared for Jan 14th? next year?

chart.png

One can make these charts show anything you want. I have been following the DJI for 6-7 years and comparing it to the 20s and 30s, and I hesitate to time anything just based on that. I think we almost blew off in 2008 but for intervention and that chart for 2005 through 2010 looks a lot like 1927 thru 1935. But the intervention stopped the correlation. If I rescale and compare 2009 thru now, with the late 20s, it suggests the Dow has yet to blow off, that the current 16000 is still only 2/3 of the peak of something like 25,000, which we would see in about a year, that the market would crash back down to the current level, partially recover for a time in an extended dead cat bounce, then dive down below 3000 another year later.

I don't put much stock into any of the details above. But I do keep an eye on the trends and continually update based on current conditions. Sooner or later a big crash will occur and we need to focus on current events more than charts.

[68Camaro]

I think this chart is scarier, though it suggests we've got a bit more time with another year plus to go (and I'm not making bets on anything related timing, I'm trying to prep like it's tomorrow. while praying it never happens at all).

I had started this last night and was almost done with the data scaling when I got distracted by my server going down, and accidently blew the file away, so I lost interest last night. Came back to it this morning, started over, and here's a somewhat interesting plot that illustrates my point above. I've done this type of thing from time to time over the several years, and in front of me now I have the paper plot of the one I did in mid 2010 when I thought we were at the dead-cat bounce point and about to spiral down into 1932 (and we would have done so had it not been for the extreme intervention of the time - few people appreciate how close to the edge we were in July 2010 - in that sense they were successful in kicking the can down the road a few more years, but in so doing they just made both the bubble and the resulting crash that much worse).

Taking this month Dec 2013 as an arbitary starting point (month 60 in this plot), I plotted +/- 5 years (obviously there is nothing after this month in the "current" line) and then went back to the 1920s, grabbed that data, and plotted +/- 5 years from there. I didn't explicitly account for inflation, other than to scale each data line to a local peak. For current data I used this month. For historical data I used the local peak before the start of the blow-off as that scaling point, which was May 1928. To cut back on the quantity of data I used the monthly data instead of the daily.

I arbitrarily scaled the two periods in time so that Dec 2013 aligns with May 1928 - there is no rationale for that other than the slopes roughly match to that point. I believe the historic data shouldn't be moved further to the left, though we might find that it should be moved further to the right (i.e., maybe we aren't yet at the point equal to May of 1928). But the changed slope of the 1928-29 blow-off hasn't been seen yet in the 2010s.

Regardless of where the equivalent time scaling should start, the scaled data is extremely useful for comparing then to now. We can observe that the successes of the late 1920s were impressive but in mid 1928 the "irrational exuberance" was yet to start. From May 28 to Sep 29, only 16 months, the market soared 60% from 217.20 to 364.93, then in the following two months it "crashed" back to what would have actually been a fairly realistic value not for the "bubble", of 232.6. A 5-month dead-cat bounce followed back up to 288.17, but attempts to restore the bubble couldn't overcome the damage done by the bubble and the market crash continued from that point until there was full capitulation two years later (yes, it took another two years, almost three years from the bubble peak to hit bottom) in July of 1932 at 46.19 - only 20% of the pre-bubble high, and at a value that was only 12.7% of the bubble high.

As I said, I don't put much stock in a literal interpretation of then to now, but it is a perfect scaled illustration of what happened then, and anyone that says that what happened then couldn't happen in some fashion now is dreaming. The world is - economically - in a far more perilous state than it was in 1928-29. All the hubris of the big dog economicists who think they know what is going on and can keep kicking the cans down the road indefinitely will come crashing down soon enough. It might be exactly like this illustration, or not. It might be slower; or faster. It might not be quite as bad, or it might be worse. But keep in mind that if we truly have yet to see the big crash (as I believe), that there is no reason that the level of asset destruction would be any less severe than it was during 1929-32, and there are many reasons to consider that it might be worse. Also keep in mind that the government was not at that time as fully leveraged as they are now; they really don't have any democratic runway left to fix this, short of martial law and imposition of a facsist isolationist dictatorship which largely reneges on its collective debt for a period of several decades during which it keeps the "national collection agencies" (e.g., Chinese) away by means of its military. [Sorry, that's an editorial comment/prediction.] The previous recovery took nearly 20 years to accomplish and in the middle of it - and influenced by it - was a massive world war which took the lives of millions. Will it be any less bad in the coming several decades? Other than those who are irrational optimists, I'm not sure why anyone would expect anything less.

DJIA scaled.jpg (52.21 KiB) Viewed 1611 times

[gubni]

Sorry I couldn't help it. Yes I believe the truth is that we are living on a false economy and it will fall, but I don't think we can predict when that easily.

[68Camaro]

Again, I myself am not commenting on timing. I think I caveated my words adequately for anyone that reads them in full. I will be shocked if this continues for more than 6 more years before the piper needs to be paid, but otherwise everyone needs to do their own due diligence.

Just imagine the pressure on the nay-sayers of 1928-1929, who might have been trying to encourage people to not join the market and participate in the bubble. Any that were professsionals would have been the first victims of that bubble because they were (for a time, if they stuck to their convictions) laughed out of business or outright fired, shunned as idiots and perma-bears, and those labels probably stuck even though mid 1930. And by the time they were shown as correct two years later they would have had no business left to continue on in.

[beauanderos]

[I don't put much stock into any of the details above

this is, unintentionally, I presume... quite funny

[68Camaro]

[I don't put much stock into any of the details above

this is, unintentionally, I presume... quite funny

I was aware of the potential at time of writing but didn't think it quite rose to enough of a sufficently advanced level to highlight. However perhaps I was wrong there, if you liked it.

[beauanderos]

[I don't put much stock into any of the details above

this is, unintentionally, I presume... quite funny

I was aware of the potential at time of writing but didn't think it quite rose to enough of a sufficently advanced level to highlight. However perhaps I was wrong there, if you liked it.

just meant to say... you aren't buying any stock at this time, not with what's going on in these markets.

[68Camaro]

In a word, no (as I've noted elsewhere).

Though if a "sure thing" came along at a cheap price and at the right time I would consider a gamble with a very small percentage of my assets. For example I did buy Ford at a buck and change after the crash, knowing that they had inherently decent products and were well managed. That was worth the gamble on a few hundred bucks, and it paid back x6 when I cashed out. (I have to be extremely sure about something to call it a "sure thing", and in this market even then it is only money that I would be willing to lose all.)

[Recyclersteve]

So much for the bold prediction for 1/14/14. As with most bold predictions, it didn't come true and wasn't even close. Black Swan events like Lehman on 9/15/08 are truly very difficult to predict.

That said, I do agree that we need at least a decent pullback and as a result I have increased my cash positions in my brokerage accounts. Not that I know anything, but there is seasonality which suggests that the time from August to roughly early October is often the worst time of the year for the stock market.