History repeating? Irrational Exuberance?
RedTiger
Posts: 5,608 ✭
A few pundits are drawing parallels between today's Janet Yellen's comments about the stock market to Alan Greenspan's December 1996 comments about irrational exuberance in the stock market.
The article is not relevant, but there is a gold chart in there too.
http://seekingalpha.com/article/97836-crash-opportunities-part-ii
When Greenspan made his now famous speech, the gold market continued lower for about three more years before bottoming in 2000 as the stock market, the Nasdaq in particular went to full bloom bubble mode. The Nasdaq went up 85% in 1999, before the bubble top and an eventual 80% decline. To those bad at math, a 85% up year followed by 80% down year doesn't result in break even, it results in a rather large loss for those ride it out. (100 up 85% gets to 185, followed by down 80% gets 37, so a 66% loss for those that started at 100).
So the obvious is that history doesn't repeat, it sometimes rhymes. Let's pretend that there is going to be a replay, and the smart folks know it. That might move up the schedule a full year or so. Meaning a stock market top two years out, coinciding with a bottom in gold two years out. The stock market rally projection nestles in nicely with another seasonal pattern, the ten-year pattern. The ten-year pattern calls for an upside acceleration in the stock market, starting September 30, 2014 lasting about 18 months to March 2016. Average gain for the 5th years (2015) is 28%.
As always, no indicator is 100%. Seasonal indicators tend to be front run. For example if there was strong published evidence that the stock market goes up the 3rd day of the month. Smart folks start to move to the 2nd day, then the 1st day, as traders jump ahead, until the indicator becomes mush.
The article is not relevant, but there is a gold chart in there too.
http://seekingalpha.com/article/97836-crash-opportunities-part-ii
When Greenspan made his now famous speech, the gold market continued lower for about three more years before bottoming in 2000 as the stock market, the Nasdaq in particular went to full bloom bubble mode. The Nasdaq went up 85% in 1999, before the bubble top and an eventual 80% decline. To those bad at math, a 85% up year followed by 80% down year doesn't result in break even, it results in a rather large loss for those ride it out. (100 up 85% gets to 185, followed by down 80% gets 37, so a 66% loss for those that started at 100).
So the obvious is that history doesn't repeat, it sometimes rhymes. Let's pretend that there is going to be a replay, and the smart folks know it. That might move up the schedule a full year or so. Meaning a stock market top two years out, coinciding with a bottom in gold two years out. The stock market rally projection nestles in nicely with another seasonal pattern, the ten-year pattern. The ten-year pattern calls for an upside acceleration in the stock market, starting September 30, 2014 lasting about 18 months to March 2016. Average gain for the 5th years (2015) is 28%.
As always, no indicator is 100%. Seasonal indicators tend to be front run. For example if there was strong published evidence that the stock market goes up the 3rd day of the month. Smart folks start to move to the 2nd day, then the 1st day, as traders jump ahead, until the indicator becomes mush.
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<< <i>A few pundits are drawing parallels between today's Janet Yellen's comments about the stock market to Alan Greenspan's December 1996 comments about irrational exuberance in the stock market.
The article is not relevant, but there is a gold chart in there too.
http://seekingalpha.com/article/97836-crash-opportunities-part-ii
When Greenspan made his now famous speech, the gold market continued lower for about three more years before bottoming in 2000 as the stock market, the Nasdaq in particular went to full bloom bubble mode. The Nasdaq went up 85% in 1999, before the bubble top and an eventual 80% decline. To those bad at math, a 85% up year followed by 80% down year doesn't result in break even, it results in a rather large loss for those ride it out. (100 up 85% gets to 185, followed by down 80% gets 37, so a 66% loss for those that started at 100).
So the obvious is that history doesn't repeat, it sometimes rhymes. Let's pretend that there is going to be a replay, and the smart folks know it. That might move up the schedule a full year or so. Meaning a stock market top two years out, coinciding with a bottom in gold two years out. The stock market rally projection nestles in nicely with another seasonal pattern, the ten-year pattern. The ten-year pattern calls for an upside acceleration in the stock market, starting September 30, 2014 lasting about 18 months to March 2016. Average gain for the 5th years (2015) is 28%.
As always, no indicator is 100%. Seasonal indicators tend to be front run. For example if there was strong published evidence that the stock market goes up the 3rd day of the month. Smart folks start to move to the 2nd day, then the 1st day, as traders jump ahead, until the indicator becomes mush. >>
100x1.85=185 (85% increase)...1.85x.2=.37 (80% decrease)1-.37=.63...which would be a 63% loss, not a 66% loss.
an 85 percent increase from 100 is 185...then a decline of 80 percent is 37...so that is 63% down from where you started-not 66.
Interesting that Yellen would select a specific sector to comment on valuation. Will we now have a monthly stock market report from the fed that will be awaited with bated breath?
Frankly the government hand in every facet of commerce is unsettling and will not end happily.
<< <i>
100x1.85=185 (85% increase)...1.85x.2=.37 (80% decrease)1-.37=.63...which would be a 63% loss, not a 66% loss.
an 85 percent increase from 100 is 185...then a decline of 80 percent is 37...so that is 63% down from where you started-not 66. >>
Thanks for the correction. A glib person might say he/she factored in the commissions and spreads
Knowledge is the enemy of fear
<< <i>The NASDAQ went up 3 fold after Greenspans comment. >>
Yes, sorry for the confusion. I cited the up 85% year in 1999, just before the top in March 2000.
I am looking up some numbers in the stock almanac. Low for 1996 was 12/9/1996, about the time of the Greenspan speech with the Nasdaq at 1316. The close at the end of 1999 was 4069. The ultimate bubble top was 3/10/2000 with the Nasdaq at 5049. That final push was 20% up in less than three months. A true blow off top. By 10/9/2002 the Nasdaq was back at 1114, giving up all the gains and then some from the time of the speech.
Of course, as with all markets, the maximum number of buyers occurs near the top. So there were a lot of losers.
For more perspective the S&P500 was around 750 at the time of the Greenspan speech (Dec 2006), topped at 1527 in March 2000, and bottomed at 776 in October 2002. Not quite the round trip, but close.
I don't ever recall a Fed chair referring to the VIX (option volatility index) before, but I don't always pay close attention to Fed comments. For those that missed it, here is the most relevant market commentary portion of Yellen's comments:
>> "Some broad equity price indexes have increased to all-time highs in nominal terms since the end of 2013. However, valuation measures for the overall market in early July were generally at levels not far above their historical averages, suggesting that, in aggregate, investors are not excessively optimistic regarding equities. Nevertheless, valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of “reach for yield” behavior by some investors."
>>
From
http://www.onlygold.com/Info/Gold-Price-History-Since-1972.asp
year high low
1996 $416.25 $367.40
1997 $367.80 $283.00
1998 $314.60 $273.40
1999 $323.50 $252.80
2000 $325.50 $264.10
2001 $291.45 $256.65
2002 $342.75 $277.75
2003 $417.25 $319.90
IMO, the Fed has no business commenting on the markets. Action speak louder than words.
Knowledge is the enemy of fear
<< <i>The good old days.
IMO, the Fed has no business commenting on the markets. Action speak louder than words. >>
If the Fed doesnt like what the markets are building with the tools they provided then take the tools away. The markets are mature and dont need to be "scolded". If the Fed doesnt like the game then it should just pick up its ball and walk away.
Knowledge is the enemy of fear
>> "Some broad equity price indexes have increased to all-time highs in nominal terms since the end of 2013. However, valuation measures for the overall market in early July were generally at levels not far above their historical averages, suggesting that, in aggregate, investors are not excessively optimistic regarding equities.""""
Perhaps she should take a look at dividend yield on the SP500. Historic is close to 4%, we are at 1.8% now. Only time lower was before the 2000 drop.
<< <i>""""here is the most relevant market commentary portion of Yellen's comments:
>> "Some broad equity price indexes have increased to all-time highs in nominal terms since the end of 2013. However, valuation measures for the overall market in early July were generally at levels not far above their historical averages, suggesting that, in aggregate, investors are not excessively optimistic regarding equities.""""
Perhaps she should take a look at dividend yield on the SP500. Historic is close to 4%, we are at 1.8% now. Only time lower was before the 2000 drop. >>
No worries then, any major drop, ups the divi juice...
<< <i>No worries then, any major drop, ups the divi juice... >>
Quite true, as a drop in the SP500 from 2000 to 1000 would bring us close to the historic average, assuming of course that the dividends did not get cut as they did in 2008.
<< <i>Sounds like right now is a great time to buy stocks then? >>
I'm not a fan of predictions, but the answer from the small slices of information I presented would be yes. The SP500 doubled after the Greenspan speech, and the Nasdaq quadrupled. The stock market is approaching a seasonal time period during the ten-year cycle when it tends to accelerate to the upside. The 5th year of a decade has an average gain of 28% (2015). Of course it could all fail this time, but participants should not be surprised if there is another upside acceleration phase. I am never one to go all in, or all out, or all short, but if those were the only three possible choices, I"d bet on all in.
Well, so would I, and history would be on our side, provided the investment horizon was sufficiently long (many things can happen short term)
SP500 PE multiple, while at 19 or so is higher than the historical average of 17 or so, it is not remarkably high, as it was in 2000 (24 or so at the peak?)
Liberty: Parent of Science & Industry
<< <i> I am never one to go all in, or all out, or all short, but if those were the only three possible choices, I"d bet on all in.
Well, so would I, and history would be on our side, provided the investment horizon was sufficiently long (many things can happen short term)
SP500 PE multiple, while at 19 or so is higher than the historical average of 17 or so, it is not remarkably high, as it was in 2000 (24 or so at the peak?) >>
If history repeats (it probably won't but it is a game a lot of folks like to play), there is going to be an upside acceleration leading to a blow off top, followed by a severe drop. Playing the pretend game with only three buttons (all in, all out, all short), the play sequence would to be go all in for the next two years to three years, followed by all out for about six months, then all short once the chart top is in place, the momentum turns negative and the 200-day-moving average is broken to the downside.
<< <i> I am never one to go all in, or all out, or all short, but if those were the only three possible choices, I"d bet on all in.
Well, so would I, and history would be on our side, provided the investment horizon was sufficiently long (many things can happen short term)
SP500 PE multiple, while at 19 or so is higher than the historical average of 17 or so, it is not remarkably high, as it was in 2000 (24 or so at the peak?) >>
I certainly can see a sharp surge upward as the reckless money seems to be entering the market (this may be the sell signal that Red Tiger is looking for
I am not buying the 19 or so PE, 25 seems closer to the truth. One time charges were once just that, rare and exceptional. Now they are a quarterly occurrence for many entities. Next up is liquidity tied up overseas. Can't disagree with a corporation moving assets offshore to cut tax liability, but clearly the quality of those earnings are not equal to those in the US and available for expansion and dividend payouts. Ebay recently repatriated several billion dollars and had to pay 30% in taxes on the money. Apple a year or two ago had to float a bond issue, albeit at a low interest rate, to fund their dividend program. Though they had over $100B in cash, is was quarantined overseas.
Getting back to Yellen for a moment. After sleeping on it for an evening, she appears to realize that the loose money policies of the last several years has created bubbles in equities as well as the bond market. Jawboning the markets have been a trick of the fed for a few decades at least.
Rather than scream fire, she carefully selected a heated segment to signal her concerns about the market as a whole, without spooking it too much. If that is correct, she is signaling overvaluation is a problem, and though not imminent, she certainly has the ability to remove the punch bowl.
<< <i>
<< <i> Playing the pretend game with only three buttons (all in, all out, all short), the play sequence would to be go all in for the next two years to three years, followed by all out for about six months, then all short once the chart top is in place, the momentum turns negative and the 200-day-moving average is broken to the downside. >>
the short step in starts at 30 & 40 & 50% above the 200 dma...
Is it real or is it Memorex?
"It is not coincidence that the Fed began blowing serial bubbles starting in the late ‘90s. The Fed is aware on some level that quality of life in the US has fallen. The Fed’s answer, rather than focus on items that it doesn’t understand (job growth, income growth, etc.) was to blow bubbles to paper over this decline. This is why we’ve had bubble after bubble after bubble in the last 15 years. The Fed doesn’t have a clue how to create jobs or boost incomes. Why would it? Most of the Fed’s Presidents are academics with no real world business experience. The Fed wants asset bubbles because they hide the rot within the US economy. If the Fed didn’t raise stock or housing prices, people might actually start to wonder… “hey, why is my life getting more and more difficult despite the fact that I’m working all the time?”
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I don't think the stock market is going up 3X after Yellen's comments this past month.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey