How does this decline compare to previous recessionary ones?

[OverThinkMuch]

50 years of inflation at 2%: 1*(1-2%)^50= .364
25 years of inflation at 4%: 1*(1-4%)^25= .360

Actually I'm not sure that is correct, either, but this could also be a chance to slow down the math for those who aren't following it closely.

If we have 50 years of inflation, 2% every year, I get:
1.02 ^ 50 = 2.69x increase from original price

So a $20 item, after 50 years, costs:
$20 x 2.69 = $53.17

Those $53.17 of future dollars is worth just $20 today:
$20 / $53.17 = 0.376

I'm I'm correct in that approach, it's because losing 2% per year is not the same as a 2% increase in prices:
1 / 1.02 = 0.9804

 

[Lsbcal]

UPDATE: Currently down -15.7% from the Jan 2022 high. Not shown is the approximate 7% inflation in that time mitigated by the SP dividend of about 1.7%.

 

[audreyh1]

Maybe we dodged a bullet? Ha ha

 

[Gumby]

Thank you for your update.

 

[Lsbcal]

Maybe we dodged a bullet? Ha ha

Dodged the bullet? Not at all sure about that . MM funds at ~5% almost cover inflation.

I have a 60/40 AA now. As I recall you were at 50/50. I keep debating whether to stick with 60/40 or not.

 

[CDRE]

Thanks for the update. Much appreciated!

 

[audreyh1]

Dodged the bullet? Not at all sure about that . MM funds at ~5% almost cover inflation.

I have a 60/40 AA now. As I recall you were at 50/50. I keep debating whether to stick with 60/40 or not.

I was talking about the contrast to the 2008 plunge. Up until 2 months ago we appeared to be tracking 2008 closely.

 

[tutan]

UPDATE: Currently down -15.7% from the Jan 2022 high. Not shown is the approximate 7% inflation in that time mitigated by the SP dividend of about 1.7%.

Looks to me in the next 6 or 7 months except for the 1929 and 2000 lines, downturns will run their course and start to head back up.

 

[Koolau]

Looks to me in the next 6 or 7 months except for the 1929 and 2000 lines, downturns will run their course and start to head back up.

I guess I'll believe it if you will.

 

[foxfirev5]

Looking at the graph, I am thoroughly convinced that I have no idea where it's going. That's why I have a LMP for the foreseeable and let the rest ride with a touch of rebalancing. Very boring. However places like this let me make my pronouncements with little harm. To myself.

 

[Lsbcal]

I like Siegel's positive outlook discussed here: https://resources.wisdomtree.com/weekly-siegel-commentary/ It is just so easy to feel discouraged or negative given the past 14 months.

See bottom of commentary for his take on equities.

Coming into 2023, I believed a Fed pause would warrant strong gains regardless of an economic or earnings slowdown. Today I am sticking with my calls for a robust equity market that brings gains of 10-15% for the year. All eyes now on jobs Friday!

 

[audreyh1]

Isn’t Siegel a permabull?

Yes the labor market is very resilient and that’s not necessarily a bad thing even though it’s making the Fed’s job harder.

 

[Gumby]

I was amused by this section:

On Behind the Markets last Friday, Jeremy Schwartz interviewed Warren Mosler, who believes higher interest rates are stimulating the economy with higher interest cost leading to very regressive income gains for those who have assets and are earning more income off their Treasury bonds.

Of course they are. That's the way capitalism has always worked. If you already have assets to invest, then you can make more money. That's what I've done - directed my idle cash into I-Bonds first and now into regular 1 and 2 yr Treasuries.

 

[Markola]

^^^^^. Heck, yes. My checking account interest in February was 9 cents, while in Feb ‘22 it was only 4 cents. That’s a > 100% gain in one year, so consider me stimulated!

 

[copyright1997reloaded]

I was amused by this section:



Of course they are. That's the way capitalism has always worked. If you already have assets to invest, then you can make more money. That's what I've done - directed my idle cash into I-Bonds first and now into regular 1 and 2 yr Treasuries.

While I am definitely in the camp that higher interest rates dampen economic activity due to many factors, including the concept that potential investments get cancelled/deferred due to competition from "risk free" investments, there is a thesis that spending from higher net worth individuals remains sticker due to higher interest rates. The rationale is that these individuals gain because they own bonds and CD's, and higher bond/CD yields means more income (to spend).

The higher income from interest part is definitely true in my case, my estimated income from fixed investments has exploded over the last year. (However, it won't result in my spending more, but that is me.)

 

[Montecfo]

I saw Siegel on Barron's Roundtable the other day and thought his comments were rational. He said he thought the Fed was not allowing time for these massive rare hikes to work their way through the economy.

He is usually bullish on stocks and I am not sure the source of his 20x valuation thesis. He did not say that on BR.

 

[Happyras]

Looks to me in the next 6 or 7 months except for the 1929 and 2000 lines, downturns will run their course and start to head back up.

I do not see the chart showing data from the post WWII inflation/recession, which would seem to more directly correlate to a post Covid inflation? chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.bls.gov/opub/mlr/1984/11/art1full.pdf

I do believe as of today, we may see a similar 1970's trend

 

[Lsbcal]

I don't have SP500 data for that 1940's inflation. Also I haven't plotted all the recessions. Mostly just the worst ones.

I am going to update my chart very soon and include some data on the inflation during several of these chart line periods at the market low points. Stay tuned.

Just returned from Death Valley.

 

[Lsbcal]

UPDATE: Here is the latest chart with some additional features. I added a color coded "X" at the market lows for each line. These show the low with the addition of dividends and the affect of inflation.

So, for example, the dark blue "X" has dropped the 1973 line's low down to about a -55% decline from the previous market peak. Interestingly the deflation in the 1929 decline brought the approximate market low up to be similar in magnitude to the 1973 and 2008 declines. Of course, the 1929 Depression was much worse historically then anything we've experienced in our lifetimes and not simply measured by the stock market performance.

The red "X" shows our current market low of -28.4% seen in October 2022. We are not currently in a recession but who knows what we are headed for. Lots of speculative guesses on that one.

 

[Markola]

Very nice. Thanks for the Xs marking the bottoms. I can’t be precise by just eyeballing your chart but, 2020 excluded, bottoms seem to be reached approximately 21 months from the peaks, and we are currently in approximately month 14 of this peak to trough trend (total days/31). Correct me though.

 

[38Chevy454]

Very nice. Thanks for the Xs marking the bottoms. I can’t be precise by just eyeballing your chart but, 2020 aside, bottoms seem to be reached approximately 21 months from the peaks, and we are currently in approximately month 14 of this peak to trough trend (total days/31). Correct me though.

I was thinking the same thing, that the current red X is sooner than in previous downturns. So current red X might be just volatility being demonstrated, with further drops in the future?

BTW, great chart Lsbcal!

 

[donheff]

If we get a debt default from an artificial debt ceiling crisis, that x could come quite a bit later.

 

[Koolau]

I was thinking the same thing, that the current red X is sooner than in previous downturns. So current red X might be just volatility being demonstrated, with further drops in the future?

BTW, great chart Lsbcal!

Yes, I'm looking for another "X" before this is all over.

Yes, thanks. It puts some perspective on things we've experienced or heard about over the years.

 

[Markola]

Yes, I'm looking for another "X" before this is all over.



Yes, thanks. It puts some perspective on things we've experienced or heard about over the years.

I take comfort seeing that we are around 450 days/14 months from the last peak and that things would have to get incredibly whacked beyond previous history for the next S&P bottom to arrive more than about 26 months total from the last peak.

IOW, according to Lsbcal’s excellent history graph, the odds are that the very worst for the US stock market, whatever is coming, ought to happen between now and just 1 year from now. Or if the worst has happened, we’re already easing out of it. Of course, no one can know, these are just odds and probabilities.

 

[Koolau]

I take comfort seeing that we are around 450 days/14 months from the last peak and that things would have to get incredibly whacked beyond previous history for the next S&P bottom to arrive more than about 26 months total from the last peak.

IOW, according to Lsbcal’s excellent history graph, the odds are that the very worst for the US stock market, whatever is coming, ought to happen between now and just 1 year from now. Or if the worst has happened, we’re already easing out of it. Of course, no one can know, these are just odds and probabilities.

I feel better already.

Of course, a lot is happening now - political and geopolitical, inflation, polarization of everything, (deleted), 2024 coming, etc. Some folks always say "This time it will be different." Heh, heh, someday, they'll be right!