'70s stagflation survivor

http://dshort.com
Total Rating:
+1 / 0

17 Comments

    • Mon Nov 17th 18:18 PM | Rating: 0 0
      Commented on:
      John Hussman: The Market Is Not in Uncharted Territory
      If today's market rolls over into another Great Depression (which I doubt), I a more long-term strategy is excellent for portfolio risk management. I follow a 10-month moving average timing signal on the monthly close. Here's a daily chart of the Dow from October 1928 to January 1935:

      dshort.com/charts/Dow-...

      Here's a monthly chart over the same timeframe with some 10MA signals:

      dshort.com/charts/Dow-...

      This monthly MA strategy is not suitable for long-term sideways markets (and it certainly won't be of interest to a mutual fund manager). But it has worked reasonably well since the mid 1990s. It would have saved a lot of pain in 1929-1932, and it would have moved your to fixed income in November of last year.
      View article »
    • Fri Nov 14th 18:57 PM | Rating: +1 0
      Commented on:
      Consumers Buy Into Disinflation
      For a visual perspective on inflation and the historic periods of deflation in the US, here's a chart that I update monthly with the release of the Consumer Price Index (CPI) by the Bureau of Labor Statistics:

      dshort.com/inflation/i...

      The chart also shows post 1982 inflation if the BLS had the same method as it employed from 1913 to 1982. See shadowstats.com for a full explanation of the alternate CPI, which is tracked at that website.
      View article »
    • Fri Nov 14th 09:30 AM | Rating: 0 0
      Commented on:
      Thoughts on Market Volatility
      For a long-term perspective, check out the intraday volatility in the Dow since 1928. Over this 80-year period, the average swing is about 1.8%. There have been only 64 days when the intraday volatility exceeded 8%. That's right -- 64 days out of over 20,300 market days. If they were evenly spread, that would be about one 8% plus volatility day every 15 months.

      Here's the amazing part -- fourteen of them have occurred since September 29th. The Crash of 1929 had only eight. Another thirty followed during the ten-year Great Depression. Four were clustered around the Crash of 1987. Only two happened during the nasty 2000-2002 bear.

      Now, guess how many of these volatile days ended with a gain versus a loss. Find the answer here: dshort.com/
      View article »
    • Tue Nov 11th 18:30 PM | Rating: 0 0
      Commented on:
      Portfolio Expectations: What a Difference a Year Makes
      Thanks, Richard. This article is another reason why you're in my watchlist.

      The 81-year time frame really resonates with those of us who study market history. And when analyzing long-term performance, it's also important to factor in the impact of inflation, as these two charts illustrate:

      dshort.com/charts/SP-C...
      dshort.com/charts/SP-C...

      Thanks again!
      View article »
    • Thu Nov 6th 09:16 AM | Rating: 0 0
      Commented on:
      The Obama Bottom
      The S&P 500 hit its recent low eight trading days ago. If we look at the bear markets in the S&P 500 since 1950, we see that the bottoming process lasted anywhere from six weeks to eight months:

      dshort.com/charts/bear...

      Drawing trend lines on charts during bear markets is an entertaining pastime. But the impact of the looming global recession on today's markets may keep you busy redrawing those lines for many months to come. The real precedents could indeed date from the late 1920s.

      The chart line I find the most troubling is a linear regression on a century or more of market closes. Take your pick:

      dshort.com/charts/dow....
      dshort.com/charts/SP50...

      You can speculate about the new sheriff in town and past being behind us. But I think the past remains very relevant. Take a look at these two charts and ponder one simple concept: "regression to the mean," which frequently involves overshooting in the opposite direction.
      View article »
    • Tue Nov 4th 17:15 PM | Rating: 0 0
      Commented on:
      Market Bottom: Historical Norms May Not Apply
      "Has the stock market bottomed?" you ask. Good question, but you confuse the issue by raising the topic of historical recessions. The recession call by the NBER will be based on GDP and related statistics that have evolved in methodology over the decades since the organization was founded in 1920.

      Consider, for example, that the eight-month recession during the 2001-2002 bear market ended in November 2001, according to the NBER, with the S&P 500 at 1,084.10. The index didn't bottom out until the following October at 776.76. That's a further decline of 28%.

      A more productive approach to the question of when the current bear market will end is to examine previous bottoming processes. The key word is "process". Rather than a sudden single event, the bottom is better understood as a process over a period of weeks or months. An overview of the eight completed S&P 500 bear markets since 1950 reveals this bottoming process that lasted anywhere from six weeks to eight months:

      dshort.com/charts/bear...

      In four of these bear markets, the first low in the process was the actual bottom. In three, it was the final low. In the triple bottom of the most recently competed bear, the trough came in the middle. The process ranged in length from six weeks to eight months. There is no clear correlation between the depth of the decline and the length of the bottoming process. Likewise, the overall length of the bear market doesn't reliably predict the amount of time spent bouncing around the bottom.
      View article »
    • Thu Oct 30th 09:51 AM | Rating: 0 0
      Commented on:
      Bears Have Rallies Too
      Excellent. For a broader historical perspective on the relationship of intraday volatility to bull and bear markets, see this series of chart for the Dow from 1928 to the present:

      dshort.com/charts/dow-...

      The color coding follows the traditional definitions: A bull market is a 20% rally preceded by a 20% decline and vice versa.
      View article »
    • Tue Oct 28th 20:35 PM | Rating: 0 0
      Commented on:
      Surviving the Short-Term to Participate in the Long-Term
      I've been analyzing the Dow raw data from 1928 to the present, available from Yahoo! Finance. Here are some Dow charts I've not yet posted:

      dshort.com/charts/dow-...

      I wanted to understand the historical precedence for the amazing volatility we've recently experienced. You have to go back to the first half of the Great Depression to find volatility as dramatic as we've seen over the past few weeks.

      After reading the dimwitted CNN Money article, I simply sorted the Dow percent gains since 1928 in an Excel spreadsheet. What I saw was utterly amazing. Here's a link to a table showing the 55 days since 1928:

      dshort.com/tmf/dow-5-p...

      Actually there were no 5% days in 1928. The first occurred a couple weeks before the Crash of 1929. There's a total of 54 days to date, all from the timeframe of '29 Crash and Great Depression except for one in 1970, two associated with the Crash of 1987, two near the bottom of the Tech Crash in 2002, and two huge days in the past few weeks.

      Rather disturbing.
      View article »
    • Tue Oct 28th 17:46 PM | Rating: 0 0
      Commented on:
      Surviving the Short-Term to Participate in the Long-Term
      After I read your article, I saw the CNN Money lead after today's market close: "Dow's 2nd best day ever" the headline declared.

      In the spirit of Black Swans, here's a sanity check on the CNN Money headline. Today's percentage gain is impressive -- the seventh best Dow return since 1928. But check out the dates of the top six:

      1. 15.34% 3/15/1933 Great Depression
      2. 14.87% 10/6/1931 Great Depression
      3. 12.34% 10/30/1929 Two days after Black Tuesday, the Crash of 1929
      4. 11.90% 6/22/1931 Great Depression
      5. 11.36% 9/21/1932 Great Depression
      6. 11.08% 10/13/2008 Two weeks ago
      7. 10.88% 10/28/2008 <= Today

      And it doesn't get any better after that. Number 8 was two days after the Crash of '87.In fact, the next 44 in order of descending gains were all during the Great Depression except for three -- two in 2002 during the Tech Crash and the first day after the Crash of '87.

      Indeed, these are interesting times!
      View article »
    • Fri Jun 13th 22:18 PM | Rating: 0 0
      Commented on:
      Why Today Is Different From the Inflationary 1970s
      Yes, today is a bit different from the '70, but far less so than you claim. Here's a chart that shows the "official" CPI with the CPI if we were still using the same methodology in use during the stagflation era:

      dshort.com/inflation/i...

      We don't yet have wage inflation, which creates an inflationary spiral. But the level of consumer suffering is indeed approaching the '70s.
      View article »
    • Thu Jun 12th 12:25 PM | Rating: 0 0
      Commented on:
      Just Your Average Bear Market
      Using the S&P 500 as the gauge and a 20% decline as the benchmark, Here's a PDF slide show that demonstrates the wide range of duration, depth and contour of the eight bear markets since 1950:
      dshort.com/docs/Bear-M...

      Using the 20% decline benchmark, the S&P 500 remains above bear territory. Here's a table of stats on the eight bear markets since 1950:
      dshort.com/articles/ne...

      One additional stat not included in the table: The average length of time it took these eight bear markets to reach a 20% decline was 10 months following the previous high. At present the S&P 500 is about 8 months beyond the high set last October.

      Time will tell, probably soon, whether the current market turns bear. If it does, we may have to wait a while before we see how it compares to these other eight.
      View article »
    • Mon Jun 2nd 14:08 PM | Rating: 0 0
      Commented on:
      Fed vs. U.S. Consumer: Will Inflation Go Higher?
      "Will Inflation Go Higher?" asks James Hamilton.

      If the Bureau of Labor Statistics were using historically consistent metrics, we'd already be well above the 7.8% rate of inflation (headline CPI) posted in October 1973 at the beginning of the Arab Oil Embargo:

      dshort.com/charts/two-...
      View article »
    • Mon May 19th 05:34 AM | Rating: 0 0
      Commented on:
      Capacity Utilization Figures Starting to Resemble a Recession
      Investor newbies and others with short memories may view the S&P 500 March 10 low as the market bottom, no recession. But anyone who remembers the 2000-2002 stock market is probably more skeptical:

      dshort.com/charts/SP50...

      As the chart shows, there can be some dramatic rallies during an extended downturn. Hopefully we won't see anything like the 49.2% decline during the last bear market.

      Since 1950, recessionary S&P 500 market bottoms arrived, on average, about 14 months after the previous high. The March '08 low occurred 5.1 months after the October '07 high. That's mighty early for a bottom, although there is a precedent: The 1990 recession, which lasted 8 months, saw the market bottom out a mere 4 months after the preceding high.

      On the other hand, two recessions -- '73-'75 and '81-'82 -- were accompanied by a 21 month peak-to-trough timeline. Here's an overview of recession stat since 1950:

      dshort.com/docs/recess...

      Given the complexities of today's economic conditions and the elapsed time since previous market highs, both extreme optimism and pessimism are probably premature.
      View article »
    • Wed May 14th 09:35 AM | Rating: 0 0
      Commented on:
      Follow-up on CPI
      Actually, if inflation were calculated using the same methods in place before 1982, the current rate is approaching 12%. The chart on the ShadowStats home page uses the BLS calculation methods from around 1990. For a look at inflation as calculated using the original method (pre-1982), see this ShadowStats chart (scroll down to the CPI Data Series):

      www.shadowstats.com/al...

      For the big picture of inflation going back to 1915, see this link:

      dshort.com/inflation/i...

      Frankly, I think the BLS was justified in some of the modifications to their inflation calculation algorithm. But the downside is that it obscures the degree to which today's economy is beginning to resemble the grim stagflation of the '70s and early '80s.
      View article »
    • Fri May 2nd 10:57 AM | Rating: 0 0
      Commented on:
      It's a Rally and It Feels So Good
      "Feel-good rallies are a normal part of the bear market landscape. This is either a run-of-the-mill feel-good rally or I am wrong and this whole financial crisis/housing price deflation/bond market distortion will turn out to be nowhere near as important as many people thought."

      I think you're right and share your perspective. Here's a comparison of a 2000-2002 bear rally with the current advance -- the S&P 500 with a VIX overlay:

      dshort.com/charts/SP50...

      Perhaps we saw a long-term bottom in March. However, given the current economic climate, I remain wary.

      View article »
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»