Kowabunga dudes!!! Posted on 03/08/2009 3:48:15 PM PDT by maccaca
Sustainable until the Democrats regain control.
You're kidding, right? The market is no place to be right now. Think of your two kids.
“They are thinking too small. DJIA 3,000 is becoming a serious possibility. That is not even worst case. In the great depression, the DOW lost 89%. From the 14,200 peak, an 89% loss is 1560. That should give everyone something to think about. Anybody who is holding stocks in this market is in for serious losses.”
I did a neat little experiment on Friday that anyone can repeat. Go to finance.yahoo.com and pull up the max history of the DOW. Be sure to use the linear scale and not the log. The trend from the mid 80s becomes very apparent.
So I started with ground zero, 1929, and used 5 year increments to just make it random and without any knowledge of the business cycles (they should average out over 70 years).
I took the DOW level every 5 years from 1929 to present, plugged it into SPSS (you can use any statistical software) and got a shitty R SQ Linear regression line of .53. Based on this data I got the equation:
Y = 120 * x + -230400
And when you plug in the year 2010, you get an expected DOW of 10,800. But anyone knows that with a regression line of .53, you can just throw that equation in the trash.
This is no doubt because of the huge discrepancy between the DOW levels from 1929 to 1985 and those from 1985 to present.
So I took the assumption that 1985 to present was a super bubble and threw out the 1985 to present data after comparing market fundamentals, regulations, etc from the mid 30s to the mid 80s and got an amazing R Square Linear of .91, pretty damn good. Based on this line, I got the equation:
Y = 20x – 38600
So you plug in the year 2010 and get a DOW of 1600 but of course that isn’t the end of the story. I accounted for the CPI changes from 1985 to present and for the year 2010, the DOW would (historically) be expected fall right around 3,350.
So one can state with a significant amount of mathematical confidence that a 2010 DOW of 3,350 would be, historically speaking, not unexpected.
Of course there’s lots more to the market than history but history sure does include LOTS of x factors like wars, innovation, trade wars, emerging nations, collapsing nations, disease epidemics and pandemics etc. but not the silly ass financial “innovations” like SIVs, CDS’s, CDOs, MBS’s etc. etc. etc. Those are new and those things screwed up my math!
Just a fun thought for everyone.
who would have thought:
March 6, 2008———12,040
March 6, 2009-———6,626
and it wasn’t much before 3/08 that it was 14,000-—it is less than half now.
These lows people are predicting are sounding possible.
With the crap Fauxbama is the dems in congress are going, look at 3-4k, not 5k for the bottom folks. 6-7 was the bottom if they weren’t doign the crap they are, and just left things alone and let things work themselves out. The more crap they try to do to “fix” this mess the longer and deeper this downturn will go.
Left alone, by end of this year, mid next at the latest we’d be going back up, and just be stagnating DJIA wise until then, with what they are doing, it’ll be years, and many thousands more down, before it starts going up again.
“El Rushbo says rock bottom will occur at 3,350.”
I think that number is the real DOW, historically, and that rock bottom will be lower. Markets ALWAYS shoot too high or too low before reaching what some would call “equilibrium” (though I think equilibrium in markets is a theoretical and not a practical construct).
So if “equilibrium” is 3350, rock bottom will be much lower. I like the analysis done by Freedom_Is_Not_Free regarding the 89% lost last time around (becuase it is based on something, not pulled out of his ass). That will probably happen again and then balance out at 3350.
I got 3350 from a statistical calculation (see post 63). It kind of freaks me out that Rush came up with that number exactly since I don’t count myself as one of his fans (that is as mildly as I can put it).
“In addition to predicting that we will see DOW 3000 and S&P 350 by the end of the summer, I am also predicting that will also see cats and dogs living together and mass hysteria.”
Just this morning I saw my cat licking/cleaning the back of my dog’s head as the dog fell asleep and the cat purred reeeeal loud. I thought the same thing, this is a sign of the times and the end is near.
Just bought 1000 more rounds of Golden Bear 7.62x39 at SportsmansGuide :P
“Come on man! People are uneasy enough as it is without hearing about things like that! I’m on the verge of panic as it is....”
Don’t panic until you see a Twinkie thirty-five feet long, weighing approximately six hundred pounds.
I’m surprised you are still using technical analysis in a market where even the fundamentals are being thrown under the bus. People are selling on fear alone. They have had horrific losses and they want it to stop.
Are you actually looking for a technical rally. I’m not saying an intermediate rally won’t happen. I’m sure it will before the next leg of the crash, just as people have been buying the dips all the way down.
But I can’t see support lines and technical analysis being good for much at this point. I don’t see “support” anywhere anymore, just how long it will us to get to the bottom, which is still a long way off.
Good luck.
Panic short covering before the weekend?
The "book" on Paul Volcker was that he put an end to double-digit inflation by raising rates to 20%. This put an end to inflationary expectations. But that's not exactly what happened.
What had caused the inflation in the first place was Lyndon Johnson's guns-and-butter decision of 1965 and Nixon's decision to close the gold window in 1971. Neither Ford nor Carter did anything to get government spending under control. John Connally had told the Europeans in 1971, "They're our deficits, but they're your problem."
It got worse under Reagan. He ran huge deficits as part of his go-for-broke strategy to end the Cold War with an American victory. It worked. And then the Elder Bush made it worse.
Bottom line: The cause of inflation was not removed.
What Paul Volcker did was move the inflation from consumer prices to the stock market. The entire bull market from 1982 to 2007 was caused by increased liquidity from monetery inflation due to government spending. The bubble simply shifted.
This bear market will bring the Dow down to where it was when the bull began, which is about 1000. There is always a negative overshoot, which is why it will fall to 400 before it's over.
And it be a generation before Americans buy stocks again.
Funny... Not ha, ha funny. But funny that just as some people think residential real estate could be soon stabilized, commercial real estate is on the brink of its own collapse. That should be good for another round of slaughter on the markets.
Not that I agree that much will be done to stabilize the slide in home prices. I think they are spitting into the wind.
I hope you are short up to your armpits...to take advantage of your prediction.
Kowabunga dudes!!! "Man the fallout shelters doom and gloom" or just the honest truth? You say that some here have been bashing stocks for 9 years or more. Well, you are right and they were wise to do so.
If you bought stocks to hold over the long term 9 years ago, in 2000, you have lost half your money today. If people said to get out of the stock market in 2000 and you did and if you never got back in, you would have missed the big rally from 2003 to 2007, but you would still be down 50% from the 2000 values.
So your contention that these people are full of doom and gloom is false. They have been proven unequivocally right that stocks over the last 9 years were a terrible buy-and-hold investment as anybody who has lost 50% in the markets will tell you today. The only reason the market didn't collapse in 2000 was because Greenspan flooded the nation with liquidity, creating the housing bubble, and reflating the market bubble.
There is a reason some people were bearish on stocks even way back in 2000, and the reason is clear to see on the chart posted below...
I take no joy in predicting a bottom of Dow 400. I'm simply stating that we are in the early stages of the worst depression in world history. Nations will fall, and monetary systems will collapse. Atlas shrugging is a very ugly process.
Your level of financial sophistication is higher than mine. Thanks for that legwork.
I have a question however. I never felt that the period of 1985 to 1994 was a bubble. I honestly felt that the new technological discoveries and products were true growth rather than a bubble. I do agree that beginning in 1995, floods of liquidity and the greed coming from that propelled a bubble that got worse and worse.
Why do you think the period from 1985 to 1994 was a bubble, rather than sustainable GDP growth supported by a massive change in society based on an era of new technologies?
My point being, if I were capable of doing the financial exercise you peformed to calculate a reasonable level of DOW 3,350, then I would have chosen 1994 as the cut-off point.
But the question stands. Why do you begin the bubble period from 1985 rather than from 1994. In fact, I’ve always felt that we underwent a tranformation in investing right at that time. People used to depend on defined employee pensions. In the early 1980s, the laws were changes to allow for tax-deferred savings accounts and the private sector embraced them by replacing traditional pension plans with IRA and 401(k) matching money, leaving the real saving to be borne by the employees themselves.
I never noticed that main street put a lot of money in the markets before the early 1980s, while afterward, everybody wanted to get some money in with Fidelity or find the next Fidelity.
What I am saying is, I can see a dramatic increase in value of the DOW in the 1980s that I think came from a surge of small investors switching from being in pensions plans to investing their own money in the market via IRAs and 401(k)s. I’ve always felt that was “real”money being put in the market. The later surges in the indexes after 1994 always struck me as a bubble.
Your thoughts?
I used the 89% from the great depression, because I think the same fundamentals mirror the great depression: our extreme leverage and level of debt, the collapse of housing, the collapse of banking.
IMHO, most analysts are not looking back before WWII. They seem to be stuck looking at 1991, 1981 and 1974. So I think they are missing the real model they should be looking at. The only model I think pertains to today’s crash is the 1929 model. That is the only one I can point to and that is why I don’t think it is out of the question that panic selling could result in a loss of 90% from peak before rising and stabilizing where it should be, which you calculated to be the 3500 level or so.
I really think most analysts are being short-sighted and are refusing to look back before WWII.
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