Generational Dynamics
Fourth Turning Forum Archive

Popular links:
Generational Dynamics Web Site
Generational Dynamics Forum
Fourth Turning Archive home page
New Fourth Turning Forum

Thread: Alan Greenspan and the Great Depression - Page 3

Post#51 at 01-12-2004 08:40 PM by Mikebert [at Kalamazoo MI joined Jul 2001 #posts 4,501]
01-12-2004, 08:40 PM #51
Join Date
Jul 2001
Kalamazoo MI

Quote Originally Posted by enjolras
1. that the aftermath of the 1987 crash would probably not produce depression like characteristics in the economy.
A depression is a rare event. Predicting that a depression will not happen is like predicting that a random clover plucked from a field will not have four leaves.

2. that after a market rally in stocks and bonds a war would likely break out that would probably go well and would likely offer profit opportunties in oil and precious metals. Wars are inflationary and all offer profit opportunities in commodities. Any randomly chosen year will be followed by a war, the question is how soon? Using your two most recent war examples, we see that the war followed the liquidation by 4 (1987-1991) and 12 (1929-1941) years. Four years seems like a pretty close following. However we had two chances in the 20th century for this close of a spacing to occur. Th question then is, what is the probability that a war will follow within four years of at least one of two randomly-chosen years in the 20th century? The answer is 55%. Another question is: what is the probability that a war will follow within 12 years of both of two randomly chosen years? The answer is also 55%.

What this means is the observed pattern of war following 1929 and 1987 is about what one should expect for any two randomly-chosen years in the 20th century. This sequence is not improbable.

3. that after the normal post-war recession that a long boom period would occur that would probably last about 20 years and would be dominated by advances in technology and speculation in technology related stocks, particularly small capitalization stocks.
Like wars stock booms occur sporadically. Any randomly chosen year will be followed by a stock boom, the question is how soon. You didn't give your historical examples of the post-war stock boom so I cannot do a probability study.
the mid boom "lull" periods are something that most traders are aware of because markets in these types of boom periods, or long term bull markets, seem to peter out for some reason after approximately 10 years and require a rest of a year or two before resuming their climb. the unusual thing about this most recent bear market was that it lasted for more than 2 consecutive years. perhaps, this was my error , though, in how i looked at this since the actual market high occurred in 2000. perhaps the correct interpretation of this particular phenomenon is that the market should not correct for more than 2 consecutive years in the years immediately following the year in which the actual high was made.
Here is the rub. A "lull" during a boom period implies an brief intermission and then a continuation of the trend.

Here's your 1962 lull:

Also shown is the start of a secular bear market. Here the index falls away from the line and does not go above it afterward for a very long time.

the 1987 is a lull too, but not one of your lulls:

What makes both of these lulls is that if you draw a horizontal line from the preceding peak, the index goes well above that line after the lull and stays there for a long time.

Here is the situation today

I draw the same horizontal line. Now either the index goes well above this line in the next several years and stays there for a long time, or it does not. If it does, then the 2000-2002 period was a lull consistent with your model. If it does not then 2000 was the start of a secular bear market as I believe. I have also drawn the approximate location of the 2100 level in 2010, which I have given as a specific value to focus on for predictive purposes. If we reach 2100 before 2010, the index will have gone well above the line and all it need do is stay there for a while. I won't wait but immediately declare my model invalid as soon as the index hits 2100 (if it does).

This is what I mean by testing and it can be done with you model too. Bascially we need to get above that dotted line in the next few years and stay above that line for several years for your model to be correct. Assuming 3% inflation going forward, the dotted line corresponds to the following S&P500 levels (monthly averages):

Year Level
2004 1630
2005 1680
2006 1730
2007 1780
2008 1830
2009 1890
2010 1940

The S&P500 index has to climb above these levels and stay there for several years. The longer it takes for the market to get there, the longer the lull is and the less like a lull it will seem.

Post#52 at 01-30-2004 03:17 PM by hilgi [at joined Aug 2003 #posts 210]
01-30-2004, 03:17 PM #52
Join Date
Aug 2003

Quote Originally Posted by Mike Alexander '59

"We are well on our way to ruling out Harry Dent's Dow 35,000 in the 2007-2010 period. Back in 1998 when Dent's forecast was made, all that was necessary for it to happen would be if the 15-year bull trend in stocks simply continued for another 10 years. Today an annualized return of over 20% would be necessary to do it, which is unprecedented. As the 2007-2010 date draws near and we are still short of Dent's prediction this one will likely fail too.
This did happen in Japan at the end of their boom.

9/11/1984 10,201

2/23/1987 19,941

12/29/1989 39,916

Sorry I don't have all the cool charts you guys have. :-)