RE: [RT] Market Cycle Perspective

[Ketayun <ketayun@xxxxxxxxxxxxx>]

That is very very interesting. Thanks.

-----Original Message-----
From: realtraders@xxxxxxxxxxxxxxx [mailto:realtraders@xxxxxxxxxxxxxxx]On Behalf Of Pete Lieber
Sent: Saturday, October 11, 2008 10:32 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: [RT] Market Cycle Perspective

There has been a lot of talk on this board about market cycles.  If one wants a model, all one needs to do is to look at the 20 years between 1962 and 1982 (see DJIA & SP-500 figures below) and compare them from 1996 to today.

 

		DJIA
	4 Yrs Later	7 Yrs Later	1  Yr Later	8 Yrs Later
1962	1966	1973	1974	1982
6/25/1962	2/9/1966	1/11/1973	12/9/1974 *	10/22/1982
Low	High	High **	Low **	New Bull Mrkt
524.55	1001.11	1067.2	570.01	1051.88
			-46.6%
1996	2000	2007	2008	2016 ?
7/11/1996	1/14/2000	10/11/2007	10/10/2008
Low	High	High	Low
5170.11	11908.5	14279.96	7891.82
			-44.7%
		SP-500
	4 Yrs Later	7 Yrs Later	1  Yr Later	8 Yrs Later
1962	1966	1973	1974	1982
6/25/1962	2/9/1966	1/11/1973	10/4/1974	10/1/1982
Low	High	High **	Low	New Bull Mrkt
51.35	94.72	121.74	60.96	121.97
			-49.9%
1996	2000	2007	2008	2016 ?
7/16/1996	3/24/2000	10/11/2007	10/10/2008
Low	High	High	Low
605.88	1552.87	1576.09	839.8
			-46.7%

 

* Note: in 1974 the DJIA hit a low on 10/4/74 of 573.22 before rebounding over 20% to a November 6 high of 692.82 before falling to the 12/9/74 low.

 

** Also note: in an earlier email I had these High & Low figures wrong.

 

 

 

In 1966 the DJIA briefly hit 1000, and then it fell away.  Seven years later (1973) it closed over 1000.  By the next year it had fallen about 45%.  It then took another 8 years for the DJIA to reach and finally surpass 1000.  Now look to today’s market.  In 2000 the DJIA hit a new high, and then it fell away.  Seven years later (Oct 2007) it hit a higher high.  The next year (Oct 2008) it had fallen about 45%. 

 

 

In 1973 we were hit with high oil/gas prices and US automakers were stuck with high mileage unsellable cars.  Looks like the idiots in Detroit got caught flat-footed a second time.

 

How long will this cycle last.  On one hand I could make an arguement that it won't take another 8 years like 74 to 82 to get us back on track.  My only reason for saying this is that we are seeing shorter cycles everywhere now. First look to the Market itself.   In the period 1933 to 66 there were 12 market downturns greater than 15%.  Likewise from 1966 to 99 there again were 12 such downturns.  In the 9 years since we’ve already had 6 such cycles, more than twice the historical rate.  We're also seeing shortened manufacturing/product cycles due in large part to computerized equipment and the advent of the Internet.   However long this sideways to down market will last, you can bet it will be marked by increasing market volatility with huge swings.

 

On the other hand is this the start of the 100-yr Bear Market that Bob Prechter has been saying is just around corner ever since the mid-1990’s?  I myself could make an argument that the US is looking at a decade or so of poor Market conditions.  For a model I keep looking at how the Nikkei 225 index has fared since 1990 when it hit nearly 39,000 Yen.  The 1980's were really the decade of the Japanese just as the 1990's were our best decade.  By 2003 the Nikkei had dropped nearly 80% to 7603.  This week it again plunged below 10,000.  Like us today they got into trouble over inflated real estate (1 sq ft in Tokyo = $50k), which in turn caused a near collapse in their banking system.  Like the US today the Japanese Government loosened up money & regulations.

 

Despite the fact that Japan has remained a net exporter and a Country of savers, 28 years later their market is still worth less than one-quarter of what it had been.  Now compare Japan to the US.  We are experiencing the greatest transfer of wealth ever - an average negative trade balance of $60B per month, which equates to over $500 per household ($6,000/yr).  Even at $80/barrel of oil, Saudi Arabia plus Iran have enough reserves to buy the entire US stock market ($15T) twice or buy nearly 60% of the entire US household net worth ($55T).  If the Japanese market can fall 80%, I can’t see why the US market wouldn’t fall at least 50%. 

 

It has been said that 70% of the economy is driven by consumer spending.  With total consumer debt ($2.59 trillion) and credit card debt ($970 billion) at all-time highs coupled with Federal debt ($10T) plus unfunded Medicaid, Medicare, and Social Security obligations equaling $59T ($194k per per person), plus house values falling I’d say the economy is going to get worse a lot worse.  I’m sure that the previous rapidly rising home values drove much of consumer spending.  What’s to drive it now?     

 

Another nail in the economy's coffin might seem unrelated but I'm betting it will have a pronounced effect on our economy.  It is the start of the retirement of the baby boomers.  It just so happened that the first wave of them graduating from high school (1963) achieved the highest SAT scores on record.  Every year since until a couple of years ago SAT scores have declined.  It got so bad that about a dozen years ago the tests were reformulated to account for the lowered educational standards.  So we are now going to see a gradual dummying of the workforce.  This is the workforce that not only has to shoulder an ever increasing Federal medical and Social Security debt but they now have to compete globally.  Frankly I can't imagine how. 

 

Though I could go on more I better get off my soapbox before I fall off.  Please excuse this non-TA rambling, but I believe it is a reason one should be looking to more to contrary trading/ indicators rather than breakout trading/indicators.

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