Recovery or Dead Cat Bounce?

[satanoperca]

What have we learned from these experiences?

No - history has a pattern of repeating itself.


Definition of insanity : doing the same thing over and over again and expecting a different outcome.

 

[Real1ty]

What does 1929, 1973, 1987, 2001 and 2007 all have in common?
What does Japan in 1991 have in common with the U.S. in 2007?
What have we learned from these experiences?

What does 1929, 1973, 1987, 2001 and 2007 all have in common?

What do those years have different?

What does Japan in 1991 have in common with the U.S. in 2007?

What does Japan in 1991 have different with the U.S. in 2007?

See i can do it also.

For all the similarities that can be shown i'm sure there are just as many and probably a lot more differentials that can be shown.

My care factor for this type of backward comparisons is zero as common sense tells you we are in a completely different world now so i am not going to go researching it but here are a couple of differences from 1929 to now.

The governments handled the situation very differently and my understanding is they RAISED interest rates, which was later conceded to be the worst possible thing they could have done.

1929 didn't have a China or an Asia like we have today, nor some of the other developing countries.

As for Japan, they are an older population of savers, not spenders.

I'm sure someone with a better knowledge of the differences or the care factor to research it could provide more reasons why it is different, than the same.

 

[trainspotter]

What do those years have different?

What does Japan in 1991 have different with the U.S. in 2007?

See i can do it also.

For all the similarities that can be shown i'm sure there are just as many and probably a lot more differentials that can be shown.

My care factor for this type of backward comparisons is zero as common sense tells you we are in a completely different world now so i am not going to go researching it but here are a couple of differences from 1929 to now.

The govt/s handled the situation very differently and my understanding is they RAISED interest rates, which was later conceded to be the worst possible thing they could have done.

1929 didn't have a China or an Asia like we have today, nor some of the other developing countries.

As for Japan, they are an older population of savers, not spenders.

I'm sure someone with a better knowledge of the differences or the care factor to research it could provide more reasons why it is different, than the same.

It appears you are are reading too much into the written word there Real1ty.

The answer to Q1 is ... the stock market dropped.
The answer to Q2 is ... property fell greater than 50% in both countries.
The answer to Q3 is ... NOTHING, we have not learned a thing as we are in the same situation all over again. Repetite, cyclic, wagon wheel, call it what you will.

 

[gfresh]

What does 1929, 1973, 1987, 2001 and 2007 blah

Your chart is dodgy.. what index is it comparing? where's the Y axis? Why is the start July 08? the DJI (which I assume it is) started falling in October 2007. I really dislike these charts slapped together cherry picked with certain periods with dodgy scaling to prove how "similar" two periods are.

 

[Real1ty]

It appears you are are reading too much into the written word there Real1ty.

The answer to Q1 is ... the stock market dropped.
The answer to Q2 is ... NOTHING, property fell greater than 50% in both countries.
The answer to Q3 is ... NOTHING, we have not learned a thing as we are in the same situation all over again. Repetite, cyclic, wagon wheel, call it what you will.

We have learnt plenty.

Those situations you pointed out are the same sure, but there are plenty more that are different.

We are not in the same situation over again, apart from isolated examples.

 

[trainspotter]

And what have we learned? That pulling the levers on interest rates slows down the economy? That oil price rising causes overall inflationary pressures? That most of the money flows into the stockmarket 2 years prior to going bust because "Mum and Dad" investors see it as easy money?

Or is it just me that we seem to be in the same BOOM AND BUST cycle yet again by market factors beyond the normal mans reproach? Have we learned to soften the blow? Ask the car manufacturers and the banks in America if they have learned anything? Burying ourselves deeper in debt to bail ourselves out is not the answer IN MY OPINION. All we are doing is prolonging the agony. Sure we get to live the life of luxury for a little bit longer but have you noticed the BOOM AND BUST cycles seem to be coming in ever increasing faster waves?

Or is it just me?

 

[MACCA350]

What does 1929, 1973, 1987, 2001 and 2007 all have in common?
What does Japan in 1991 have in common with the U.S. in 2007?
What have we learned from these experiences?

BTW that 'Present' in your graph looks to be about 8 months ago, not to mention they've ignored the first 9 months or so of the current crash.

cheers

 

[MRC & Co]

Agree reality.

Liquidity pump (didn't happen in 29).

Helicopter handouts (didn't happen in Japanese liquidity trap).

Will most probably be late to withdraw liquidity (didn't happen in Japan).

But, recent good data caused by one off (or perhaps a chance of a second round, however unsustainable longer-term), stimulation, inventory rebuilding, cost cutting. Still too many problems to name for longer-term growth.

 

[Beej]

have you noticed the BOOM AND BUST cycles seem to be coming in ever increasing faster waves?

Or is it just me?

Must just be you - what I noticed was 17 year of un-interrupted economic growth in Australia before the current "bust" = the longest such period since the immediate post war boom time of the 50's and 60's? Prior, there was about 8-9 years between the 91 and 82/83 recessions, the what about the same again back to the early 70s "oil shock" recession?

Cheers,

Beej

 

[trainspotter]

BTW that 'Present' in your graph looks to be about 8 months ago, not to mention they've ignored the first 9 months or so of the current crash.

cheers

Thanks for "the heads up" guys and gals. The chart displayed was a bit passed it's "used by date" and was evidenced for comedy purposes only. The point I am trying to make that the "cycles" of BOOM AND BUST seem to be getting closer together and the pathways of self proclomation seem to be more righteous. It seems we allow ourselves to be sucked into the vortex and when the excreta hits the spinning blades the reaction is toooooooooooo swift for my liking. So what if a company goes broke? Does it require the Guvmnt to bail it out? What does this teach us? A handout mentality? It doesn't matter what we do as corporate citizens because we know that the powers that be will be able to print more money?

PUHLEEASE ! We require a bit of blood flowing in the streets to teach us a lesson on fiscal responsibilty. The same kind of extramonetary affairs seem to be going through the channels of history time an time again.

What have we learned? NUFFIN. Except to borrow more money to keep us in the lifestyle we have become so accustomed to.

 

[trainspotter]

Must just be you - what I noticed was 17 year of un-interrupted economic growth in Australia before the current "bust" = the longest such period since the immediate post war boom time of the 50's and 60's? Prior, there was about 8-9 years between the 91 and 82/83 recessions, the what about the same again back to the early 70s "oil shock" recession?

Cheers,

Beej

Ummmmmmmmm the stock market "FELL" in those years that I have indicated with a knockon effect that disrupted many industries. The building industry in 2001 was ROCKED by the collapse of HIH and needed governement intervention to survive. It seems to me that the ripples of industry have a response far quicker then what is necessary. We seem to live in a society that is too damn quick to bail out people who are swimming against the tide. Let them suffer first ... because they are the clever corporations who got themselves into this mire to start with. NO???

It must be me then.

 

[drsmith]

The following chart is from another thread and offers an interesting insight into the bigger picture.

http://www.dowgoldzoom.com/images/dow_gold_zoom.pdf

There were clearly two major crashes in the Dow/Gold price ratio in the 20'th century. What is interesting though is that stock market performance was very different in the two cases. The first was associated with the Great Depression, a sharp deflationary contraction while the second played out over a longer period and was associated with the stagflation era of the 70's.

Nominal performance of the Dow was far better in the 70's than it was in the 30's however after adjusting for inflation the Dow fell ~75% ftom 1966 to 1982.

http://www.dogsofthedow.com/dow1925cpilog.htm

Also of interest is the two small spikes in the Dow/Gold ratio in the 70's on the long term chart. These correspond to full (or near full) recoveries from severe shorter term contractions in the Dow.

Currently we are going through a third major contraction in the Dow/gold ratio of which if the previous two are any guide has some way to go. How it plays out in terms of nominal share market performance depends on efforts to stimulate inflation but in real (inflation adjusted) terms, equities we have not yet reached a bottom I suspect.

 

[Knobby22]

Interesting Doc.

I don't respect the Dow much as an index, how do the charts look, especially the latter one with the Nasdaq and S&P 500?

And what about the ASX as in my opinion Gold is now a commodity like silver.

Knobby

 

[gfresh]

For reference.. and seeing as we're in AUSTRALIA..

Here is the "Great Depression" here in Australia and it's effect our market (it's a monthly chart). Believe it or not, our market is quite different to the US market. Obviously the majority of material you are going to read is going to be based on the US market, but be careful extrapolating that to our market.

Anybody feel free to overlay this on the current market , but I think it doesn't suit the right agenda / perspective of the permabears who want everybody believe a lower lower is "any moment" just around the corner and it will wipe you out as soon as you can blink. In reality you have plenty of time to protect your capital if this is only a "dead cat bounce" leading to lower lowers. But until then, plenty of hay to be made.

Unless you stick your head in the sand during any downturn, with a blanket buy and hold strategy and think "any moment now this will turn around" for years and years on end, you're perfectly safe. Fear is pointless.

 

[trainspotter]

OK .. I will give it one last pull and if it doesnt start this time I am taking it to the dump.

I am not talking about the ASX and how the money just keeps on flowing like the Amazon. I am talking about recognising the signals of what can and has happened previously in the market place. We do not learn. The market corrects itself ... great ... how about a 10% correction and not 40% dragging down super funds and causing Govts to bail out corporations. Have we not learned anything? What about Japan overheating in the property dept? Did the U.S, learn from them? NUP. They suffered the same fate with 50% drop in major cities. Unregulated borrowing I believe?

I am in no means being a naysayer nor trying to be a permabear. I am asking people to look at the history of what has happened previously and see if we can learn from our previous blunders. Yes it is more than likely that the market will keep on charging ahead and making everybody very happy with it's outcomes for the time being and then when it hits the wall like a bug on a windscreen what do we do then? I know. Turn the key and start all over again.

Goodness me are we that illogical in our repsonses that it would not be adivasable to err on the side of caution? History dictates it. The great machine continues to require sacrifices and there seems to be plenty of willing people to accomodate. IMO.

 

[Knobby22]

Trainspotter

What history? We can only look back to the depression when fiat currencies took over from the gold standard. that's 70 years. And how many recessions in that?

In probability terms there is not enough records and the world keeps changing anyway.

We are going to have some undesirable side effects but the history of stock markets is short and know one really knows what will happen. I personally believe we will get reasonably low growth for a while but if governments get their act together, that's it.

Others are predicting high inflation, a double dip or another bubble in record time.

I don't see how you can hang your hat (or wallet) on history.

 

[trainspotter]

Who mentioned recessions? I pointed out that the dates I posted originally were when the "stockmarket" corrected itself. Interest rates go up as people jump out of the toppling inferno and eventually the rates begin to topple and the masses drop their $$ into property. I seem to be speaking a different language to the converted here and will refrain from asking to look to see if there is any way of "softening" the velvet sledgehammer. We do not learn from the previous corrections is what I am spruiking. I personally was very fortunate prior to the market "correcting" and had most of my money positioned in property (70%) and cash (20%) This was due to good fortune and not by any stroke of genius on my behalf. What have I learned? The market has cycles. We are currently going through an up phase in stocks. Interest rates are sure to follow. Property will also peak in the future as well and then ALL of it will drop away again. OOOOOOOOOOOOEEEEER??

 

[Trevor_S]

Does it require the Guvmnt to bail it out?

No, it's just Gov't refuse to keep their inept, interfering fingers out of it.

What does this teach us?

That voters keep electing idiots to Government

A handout mentality?

We have that, have you seen the welfare bill ? Listen to the squeal if you try and reduce it, or even mention quarantining NG to the loss making enterprise, or suggest CGT on PPOR, or death duties etc etc.

PUHLEEASE ! We require a bit of blood flowing in the streets to teach us a lesson on fiscal responsibilty.

While I agree, what has any of this have to do with the OP ?

Just look to the Storm thread for people wanting to be bailed out and blaming a plethora of other people for their predicament.

What have we learned? NUFFIN. Except to borrow more money to keep us in the lifestyle we have become so accustomed to.

Yes, lots of people doing that

That said,

“There are three kinds of people who make predictions on the market –
Those who don’t know;
those who don’t know they don’t know;
those who know darn well they don’t know and get big bucks for pretending they know”

Burton Malkiel

 

[drsmith]

Interesting Doc.

I don't respect the Dow much as an index, how do the charts look, especially the latter one with the Nasdaq and S&P 500?

And what about the ASX as in my opinion Gold is now a commodity like silver.

Knobby

I have not been able to find a chart that compares the long term S&P 500 to the gold price however doing some quick calculations from the S&P since 1950 the Dow was about 12x the S&P in 1950, ~8x in 1980 and ~9x now so on that basis I'm reasonably satisfied that the two most recent downtrends on the Dow/gold ratio would be broadly similar on the S&P 500.

The Dow/gold ratio to me paints a picture of a long term bearish cycle in ecomomic terms with declining real incomes for individuals. There will be exceptions and it will be interesting to see what extent China and India can make up for lower long term growth rates in the western world as deleveraging there continues. China and India need international markets to sell their products so they are not isolated from the deleveraging process of the west.

Another chart that paints a longer term bearish picture is the following

http://dshort.com/charts/SP-Composi...l?SP-Composite-secular-trends-with-regression

in that whenever the S&P composite has fallen below the trend line it has ultimately bottomed well below the trend line. This of course is only for the US but the US is still the worlds largest economy.

How though will this manifest itself in terms of nominal share prices. Indebted western governments around the world must be hoping that the combination of inflation and time will mask the fall in nominal terms as it did in the late 60's and 70's and that (to the best of my limited knowledge) puts the large interest rate and quantitative easings into perspective.

 

[Knobby22]

Doc

You could argue that the world changed massively after WW1, the Depression and WW2 and the line of regression should be taking after this period. This would show the line rising more rapidly which would hint that the low point of this recession has probably been reached already.

I agree though that the US economy has been travelling badly for some years now, and to me it appears to have begun during the 70s and has accellerated ever since but how that relates to the stock market is a difficult to correlate.