John wrote:This amazes me because it's just like 2006 and 2007. At that time, I was writing that the stock market was in a huge and growing bubble, and I kept expressing astonishment that it could keep going up when price/earnings ratios were so high, and are still high. (See "Updating the 'real value' of the stock market.") The Law of Mean Reversion still applies today, just as it did with the
Is it all going to happen again? Will the Dow Industrials index reach 14,000 before it collapses again?
My answer to that is no. The cycles and pattern that the stock market has been making in this recovery are similar to that of 1930 except the pattern is 2.6 times larger (2.618 is a fibonacci ratio). I usually don't post my research but will post some specific things in this instance so everyone can see the pattern and the recent deviation due to QE2.
http://oi54.tinypic.com/2litv92.jpg
This links to a full size image illustrating the 1930 and current market. The thick green lines that connect the low points are the common cycles. Above those you can see small red and green segments that show even the subcycles are similar.
The thick red line on the 1930 graph shows where the 1930 market may have headed if a program similar to QE2 had been introduced at that time. The thick blue line on the graph of the present market shows where the market would be now had QE2 not been introduced and the market had followed the same trajectory as it did in 1930.
I've been stating for over a year that there is crash potential under this market due to the size and scope of previous manipulations. There is now tremendous immediate and future crash potential under this market due to the QE manipulation and it's failure to engender any improvement in the economy. The short term crash potential is an immediate move to 730 or so on the S&P, followed by a longer term move to the equivalent of the 1932 lows PLUS a potential overshoot far below the trendline due to the damage the QE manipulation has done to the economy. I'd guess that the Dow Jones Industrials falling to some of the wild values being thrown out on the low side is not outside the realm of possibility.
As can be seen, Bernanke is well aware of the fact that his policies have failed and the stock market was in danger of falling off a cliff in September. After all, he is an expert on the Great Depression. It's not enough to be an expert on the Great Depression, though. Competence cannot be established through narrow studies and not only is Bernanke incompetent outside his narrow field of study, his incompetence has shown him to be increasingly desperate with the statement that stock prices can be manipulated to get the economy going again. It's easy for me to sit here and Monday morning quarterback. The basic idea, though, is that there is absolutely nothing that can be done to avoid a Depression, the Generational Cycle, the Long Wave, or whatever anyone wants to call it. Anyone who spends their life trying is engaging in folly at best and destructive action at worst.
There are many other nuances in this chart that can be seen upon further examination. One can see some lines drawn in that represent the cyclical aspects of previous waves and, if this wave follows previous wave patterns, it is at an imminent conclusion.
However, having said all that, it's not a done deal that the market will crash now or at all. Hyperinflation could begin to take hold, but it probably needs to happen now in order for the market to overcome the cyclical forces. In my opinion, based on all my studies, the economy is at a critical juncture and potential turning point.
I guess at this point, since I am being specific here, I should state that I am fully short this market via futures. That could change at any time. I'm not a financial advisor and am not trying to give financial advice. But I am trying to educate people (especially at this time) on what I exactly see is really happening in this market and then people can make their own conclusions. There's a lot more that could be specifically written on this topic, but this is a start anyway.