Riddle me this batman. This pitiful Dow rally would need to go on for another year and half and go up by another 100% just to match the Average stock market rallies after a bear market. With valuations already at 1929, 2000, and 2007 levels, bullishness at all-time highs, margin debt at all-time highs, corporate profits falling, the Fed close to raising rates, and the economy already in recession, do you think we’ll reach the average?
If so, take on some margin debt and buy some Twitter, Facebook, Apple, Amazon, Linkedin, and any other high flyer with a 100 PE ratio. Good luck with that. Have you heard the numnuts on CNBC tell you how weak this rally has been?
The Dow just made another all-time record high. To provide some further perspective to the current Dow rally, all major market rallies of the last 115 years are plotted on today’s chart. Each dot represents a major stock market rally as measured by the Dow with the majority of rallies referred to by a label which states the year in which the rally began. For today’s chart, a rally is being defined as an advance that follows a 30% decline (i.e. a major bear market). As today’s chart illustrates, the Dow has begun a major rally 13 times over the past 115 years which equates to an average of one rally every 8.8 years. It is also interesting to note that the duration and magnitude of each rally correlated fairly well with the linear regression line (gray upward sloping line). As it stands right now, the current Dow rally that began in March 2009 (blue dot labeled you are here) would be classified as below average in both duration and magnitude.
What if the rally is related to the weakening dollar in the rest of the world. What if prices of consumer demand are beng kept down by low demand. What if the dollar dies around the last quarter. Then the stock market will soar in dollars but drop in value. Lol
Hollow man, what weakening of the dollar?
[img]http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=dxy&uf=0&type=2&size=1&sid=3044712&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=11&rand=1121612299&compidx=aaaaa%3a0&ma=5&maval=13&lf=4&lf2=32&lf3=256&height=392&width=430&mocktick=1[/img]
No one knows the future, but it is interesting that the Dow Transports are sagging while the Dow Industrials are grinding higher to new ATH’s.
[img]http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=djt&uf=0&type=2&size=1&sid=1644&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=1576432351&compidx=aaaaa%3a0&ma=5&maval=13&lf=4&lf2=32&lf3=256&height=392&width=430&mocktick=1[/img]
[img]http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=djia&uf=0&type=2&size=1&sid=1643&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=7415742&compidx=aaaaa%3a0&ma=5&maval=13&lf=4&lf2=32&lf3=256&height=392&width=430&mocktick=1[/img]
I will reiterate my forecast for the record here:
1. Bonds have already topped and will soon accelerate down (interest rates up), perhaps in line with Martin Armstrong’s Big Bang (I remain agnostic on this one.)
2. Stocks have not yet begun to plunge, but will sooner or later.
3. Commodities topped 7 years ago.
4. Gold topped 4 years ago.
5. All of the above plunge in price.
6. This has the effect of causing a massive decline in wealth, and by further effect, abstract forms of money–currently an ocean of IOU’s–evaporate.
7. The US money supply collapses as this abstract component (wealth, leading to credit, leading to borrowing) behaves like burning hydrogen in the Hindenburg.
8. The banking system freezes solid; nothing in, nothing out.
9. Government tax receipts crater while its borrowing ability is flipped off like a light switch.
10. All industries (and their jobs) dependent upon government spending simply turn off the lights for a while. Unemployment zooms past 50%.
11. The conclusion of all “experts” is that the economy is suffering from a massive shortage of MONEY (as the abstract component, currently many, many multiples of total cash and coin, burns down toward the physical component.)
12. Once stocks, bonds, real estate and Beanie Babies have dropped in nominal price by 75-95% in several waves, each a crash all by itself, Congress or the Executive will declare an emergency and issue orders to the Bureau of Printing and Engraving to print enough banknote cash to reflate the economy.
13. It may be that at first, the only printed bills will be of very large denomination to facilitate inter-bank payment activity, but eventually the newly printed cash will begin to spill into the comatose consumer economy in order to defibrillate (shock) the flatlining economy back to life.
14. Stocks, surviving bonds, etc. launch into a vertical, absolutely monstrous rally, but eventually flame-out.
15. A banknote hyperinflation will ensue, Zimbabwe-style.
16. The USA experiences social chaos, martial law, secessionist activity, a military coup, and intra-country warfare.
The last couple are far enough away that I may not live to see them even if I make it to 95.
d.c. Sunsets
I bet you don’t get invited to many parties. 🙂
Paraphrasing the Greatest Marx of all, “I don’t think I’d go to a party where the hosts would have me as a guest.”
For the record, here’s what an 80% market collapse looks like.
[img]http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=comp&uf=0&type=2&size=1&sid=3291&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&startdate=3/1/2000&enddate=10/10/2002&rand=440452528&compidx=aaaaa%3a0&ma=5&maval=13&lf=4&lf2=32&lf3=256&height=392&width=430&mocktick=1[/img]
And while the NASDAQ Composite is nominally back to its all time highs of 15 years ago, the dollar has lost 37% of its purchasing power according to the Federal Reserve’s inflation calculator, so today’s 5000 on the COMP is still DOWN 27% in purchasing power.
And THAT ignores the fact that investors in 2000 owned shares of companies whose common stock went to ZERO, so looking at the index alone STILL overstates how a Buy-and-Hold approach worked.
Someday soon I believe Mr. Market will enter the third phase of his diabolical plan.
1. Let people think everyone else is getting rich in the stock market, so they all pile in at or near the top.
2. Have two 50% collapses, where people capitulate near the lows, then rally indices all the way back to new highs, teaching them that they should never sell, never capitulate.
3. Now that everyone is brainwashed that stocks are the only way to lasting wealth, and that only fools ever sell, have stocks fall 50%, then another 50%, then another 50%, and then ANOTHER 50%. Now that stocks are down almost 95% from their highs, people capitulate in desperation because they finally realize stocks CAN fall 50% in an infinite series, FOREVER.
Capitulation = bottom. Time to rally.
Sorry, I misspoke above:
The cumulative rate of inflation from 2000-2015 was 37.1%
The loss of purchasing power from 2000-2015 was 27.1%
In year 2000 constant dollars, today’s NASDAQ Composite is 3646, not 5000.
DC Sunsets….. now that’s what I’m talking about!!! Everything is based on a promise in the stock market, all thanks to QE…… until the promise is broken. Then watch out below!! The stock market does not make an economy, but QE will ultimately kill the economic engine.
The trend is your friend and it is still up. However I would watch it very closely.
overthecliff,
Yes, if I were long any market I’d have trailing stops in place but I’d probably still keep my position here. Since I’m not in the market, while the trend is still up, this rally is more than long enough to qualify as “old” and “extended.” I can’t see any remotely safe long entry here in stocks. I missed the boat. Not the first time, won’t be the last.
Gold is slightly tempting. But I concur with your view; the trend really is your friend, once you figure out which way she be going.
dc, thanks for your excellent list and commentary. Since 2008, we have been watching the Fed executing a limited version of #12 (calling it QE) in an attempt to maintain equilibrium for #s 6,7,8,9 & 10. And further, we haven’t yet seen the effects of #11 because of the Fed’s efforts thus far.
The odds are small that we can withstand rising interest rates very long without a lot of major problems, as listed above. And the Fed only controls the short end of the yield curve…