Rivaling the 1980's ?

[Lsbcal]

Here is an updated chart of the SP500 off some major lows:

I started doing this chart over 3 years ago and was hoping to follow the 1980's market (red line) but did not really expect it. At the end of 2013 the blue line we are on was looking pretty good ... unfortunately that is in the past. Who knows what 2014 will look like.

 

[NW-Bound]

Watch out for that big correction coming. Or is it happening already, right on Jan 2nd of the new year?

 

[REWahoo]

OTOH, Dr. Doom seems, by his standards, downright euphoric...

The good news is that economic performance will pick up modestly in both advanced economies and emerging markets. The advanced economies, benefiting from a half-decade of painful private-sector deleveraging (households, banks, and non-financial firms), a smaller fiscal drag (with the exception of Japan), and maintenance of accommodative monetary policies, will grow at an annual pace closer to 1.9%.

Moreover, so-called tail risks (low-probability, high-impact shocks) will be less salient in 2014. The threat, for example, of a eurozone implosion, another government shutdown or debt-ceiling fight in the United States, a hard landing in China, or a war between Israel and Iran over nuclear proliferation, will be far more subdued

Nouriel Roubini says that global growth will pick up modestly in 2014, while the risk of a major shock will diminish. - Project Syndicate

 

[MichaelB]

OTOH, Dr. Doom seems, by his standards, downright euphoric...

Nouriel Roubini says that global growth will pick up modestly in 2014, while the risk of a major shock will diminish. - Project Syndicate

Is his track record predicting sunshine as accurate as it is forecasting doom?

 

[karluk]

The thing I find most amusing about this chart is that by far the best bounce in history was the one recorded off the 1932 lows - which, as was pointed out in a recent thread, was supposedly part of the "secular bear market" of 1929-1949. It's a good illustration of how easy it is to lie with statistics. Presented one way, 1932-1949 was an investors paradise; presented slightly differently and you'd think it best to have stayed out of the market entirely until 1949.

 

[galeno]

I'm not getting euphoric. Always a bad idea.

 

[Lsbcal]

I'm not getting euphoric. Always a bad idea.

We can comfort ourselves with the fact that the markets don't care what we feel. It's where you place your money that counts ... good or bad.

So I'm going to try to be happy and not fearful ... but sticking to a plan.

 

[karluk]

It appears that part, and maybe all, of the statistical games being played with these charts is the decision on whether or not to include dividends, with the decision to inflation-adjust the chart another consideration. I found the following chart of DJIA with dividends excluded, which makes it look as if stocks didn't regain their inflation-adjusted 1929 highs until sometime in 1959.

Naturally, the web site where I found this chart is called "Fred's Intelligent Bear Site". Not accusing Fred of being biased in his presentation or anything, just sayin'...

Fred's Intelligent Bear Site - Inflation Adjusted DJIA

 

[Lsbcal]

A few words about statistical games. Sure it happens all the time and I've been accused of doing it too.

The reason I started this chart in 2010 was because I've been through some of those upward moves after lows were established. I remember the 1970's and other recoveries. A year or so after the lows it's pretty obvious to many that a recovery has started. It was pretty clear to me anyway. It was never clear how things would play out and still is not.

So I wanted to focus on how the recovery would play out versus other historical periods. That is all this chart shows. It may even start down this year or go flat or go up. At least I can say my intentions were pure.

P.S. The only line I drew on the chart is a growth rate of 7%. That is the SP500 historical real return with dividends. No predictions.

 

[karluk]

A few words about statistical games. Sure it happens all the time and I've been accused of doing it too.

I hope nobody construed my comments as an accusation that you were the one playing statistical games, Lsbcal. As a matter of fact, I am convinced that your chart (which I believe is both inflation adjusted and includes dividends) is by far the best way to measure stock market performance. My personal opinion, unsurprisingly, has not prevented others from presenting the data in any way they see fit. The net result is that one sees dueling charts trying to prove different points, all according to the authors' personal perspectives.

To give just one example, here is JC Parets' inflation-adjusted-but-dividend-excluded chart from October, with the accompanying text, "fortunately I’m not in that business and I can share with you guys any chart I want. And I think it’s important that when I speak with investors, they understand how in Real terms, not only is the S&P500 not at all-time highs, but actually down 20% over the last 13.5 years."

Inflation-Adjusted S&P500 Chart - All Star Charts with JC Parets

The very first comment gives a link that points out the S&P500 did indeed reach an all time high this past June, assuming dividends were reinvested. Mr. Parets acknowledges this fact, but doesn't seem interested in printing a retraction of his original misleading claims. I'm not sure why.

 

[meierlde]

The thing I find most amusing about this chart is that by far the best bounce in history was the one recorded off the 1932 lows - which, as was pointed out in a recent thread, was supposedly part of the "secular bear market" of 1932-1949. It's a good illustration of how easy it is to lie with statistics. Presented one way, 1932-1949 was an investors paradise; presented slightly differently and you'd think it best to have stayed out of the market entirely until 1949.

As with many things it depends on when you start the period you are considering. for example, start it in 1929 and things look very different than starting in 1933.

 

[Lsbcal]

As with many things it depends on when you start the period you are considering. for example, start it in 1929 and things look very different than starting in 1933.

We only know the low in retrospect. The 1929 aftermath was harrowing and the monthly swings were like nothing we have ever seen in modern times. One would have been very daring to go into the market even one year into that low I start with.

Even in 2009 I did not rebalance until July 2009 so missed some of the run up with my added equity money.

 

[GrayHare]

I find Fred's Dow/Gold chart interesting. If this really is a 1980s redux, it's currently about 1984 with 15 more fun years ahead for equities. http://home.earthlink.net/~intelligentbear/com-dow-au.htm

 

[haha]

I find Fred's Dow/Gold chart interesting. If this really is a 1980s redux, it's currently about 1984 with 15 more fun years ahead for equities. Fred's Intelligent Bear Site - Dow-Gold Ratio

Of all the ideas that get floated here, I think this is the least likely to happen, except maybe Wahoo's refrain of the asteroid. Good luck to any of you that are putting your money and not just your mouths behind this proposition.

What kind of world geopolitical and economic state can you possibly foresee that would justify the market valuations implied here?

Ha

 

[Hamlet]

While I think a replay of the 80s-90s is a long shot, I do think that the next few decades do have the potential to be very good investment-wise if things break well.

1. The buying power of a rising middle class in India and China have the potential to fuel massive revenue increases in the multi-nationals around the world.

2. The energy boom in the US has the potential to fuel massive increases in the production needed to earn those revenues.

3. Some technology advances have the potential to unleash a lot of economic potential. Imagine a world where genetic engineering makes the phrase "people aren't getting any smarter" completely false. Or a world in which the ravages of age are extremely unlikely to leave a person dependent on care-givers for any length of time.

Note that while I'm not expecting 80s-90s performance, I do have a 90%+ equity allocation. So I'm certainly betting that the future has at least some potential for positive returns.

Of all the ideas that get floated here, I think this is the least likely to happen, except maybe Wahoo's refrain of the asteroid. Good luck to any of your that are putting your money and not just your mouths behind this proposition.

What kind of world geopolitical and economic state can you possibly foresee that would justify the market valuations implied here?

Ha

 

[audreyh1]

Is his track record predicting sunshine as accurate as it is forecasting doom?

To be fair - he turned bullish in mid 2012, and so far that's been an excellent call!

So now he extends it to global.....

 

[audreyh1]

Here is an updated chart of the SP500 off some major lows:

I started doing this chart over 3 years ago and was hoping to follow the 1980's market (red line) but did not really expect it. At the end of 2013 the blue line we are on was looking pretty good ... unfortunately that is in the past. Who knows what 2014 will look like.

OOOOOooooo - just in time for a repeat of the '87 crash!

 

[Lsbcal]

OOOOOooooo - just in time for a repeat of the '87 crash!

I am selling crash insurance.
Full disclosure: it didn't work for institutions in Oct 1987.

P.S. I'm not recommending this but I'm actually considering (yes, this is intentionally a weasel word) lightening up should the market have a good January + February. It will be interesting to see if it goes up, maybe due partly to investors who "regret" their previous low 2013 equity exposure.

 

[galeno]

Our port actually gained 1% in 1987. We did not panic and hung on. At rebalance time we did not have to rebalance.

 

[marko]

Of all the ideas that get floated here, I think this is the least likely to happen, except maybe Wahoo's refrain of the asteroid. Good luck to any of you that are putting your money and not just your mouths behind this proposition.

What kind of world geopolitical and economic state can you possibly foresee that would justify the market valuations implied here?

Ha

There's still a couple of trillion $$ sitting on the sidelines that was taken out of equities in 2008-9... IMHO

 

[harley]

I'm predicting a nice run up until the end of 2014, followed by a major crash.

Coincidentally, I'll finish DCAing into the market in the last quarter of 2014.

 

[donheff]

There's still a couple of trillion $$ sitting on the sidelines that was taken out of equities in 2008-9... IMHO

My best guess is that timid folks will get back in boosting us to a mild bubble. I will probably just ride out the subsequent plummet at my current AA. No way to predict when to get out or, even more important, when to get back in.

Lsbcal - you should post your chart every January so us lazy followers can see how the line moves.

 

[canuck5]

Here is an updated chart of the SP500 off some major lows:

I started doing this chart over 3 years ago and was hoping to follow the 1980's market (red line) but did not really expect it. At the end of 2013 the blue line we are on was looking pretty good ... unfortunately that is in the past. Who knows what 2014 will look like.

I thought this was a very interesting chart, at the start of the year. We probably came close, to following the path of the 1980's?

 

[canuck5]

If it's ok with everyone, we can just bypass the (major) crash.

 

[Lsbcal]

If it's ok with everyone, we can just bypass the (major) crash.

I'm OK with that!

Looking at 1987, the bonds paid a big premium on a historical basis. Not so nowadays so stocks have much less competition.

Looking at 1937, there was still massive unemployment (15% if I recall right). Didn't take much to unbalance the economy.

I'll update this chart in early January.