Futures are up 30, oil over $52.50…
Not to put too find a point on this being a replay of the Roaring Twenties, the end of which was overseen by president Hoover, but here we are with markets setting new highs and the future ahead looks…well…problematic is a polite term for it.
Just as the original Roaring Twenties ran from the end of the 1921 market break up through the September 3 peak in ‘29, an astounding eight-year run, the current run should also end in about 8-9 years which means by this fall, but more likely next year’s fall, we should be seeing economic reality set in.
And there are other indicators, as well. But since this is a shortened work-week, here’s the picture I drew for Peoplenomics readers a couple of months back:
The key thing I look for are the ratios. For example, we know that the run-up from 2009 to present has been a factor of (roughly) 2.72 times.
Now, let’s look at the chart above: Where would 2.71 times the 1921 low have placed the Dow back when?
The answer would be (63.9 x 2.72) =173. 78.
Given that my chart here is a couple of months old, we can see we’re in the period just ahead of what should be a screaming rally in stocks that could last another year, and maybe till the closing hours of the Obama presidency.
Then, we would slip into the soup of Paul Krugman has described in his book titled The Great Unraveling: Losing Our Way in the New Century (Updated and Expanded).
Still, for now, it’s not exactly secret that our Trading Model has been mostly long since 2009 and keeping an eye on the longer-term rhymes is where we can find ancestral evidence of market bubbles going to such extremes: From the 1921 break’s low, the Dow rallied to 5.96 times that value before breaking.
If we then look at 2009 and use a starting level of 6627 and apply this kind of wild blow-off excess, we could actually make a case for a Dow 39,500.
Yeah, sure, there is fear (and a lot of loathing) whipped up by the rabid right radio rhetoricians (RRRR) but the fact is that the economy doesn’t seem poised for collapse yet, this morning.
I’ll grant you, it’s not likely to play out so smoothly and predictably, but we’ll have some further comments on where smart money might be going in tomorrow’s Peoplenomics report.
In the meantime, Elaine and I are off on our cruise this coming Saturday, so don’t look for really long columns (though quite likely more interesting than usual). But I wanted you to understand why we are taking time to “sail and smell the roses.”
The picture is not nearly so clear today, as it was in the 1930’s blow-off. For one, the impact of inflation was pretty low. In fact, according to the Minneapolis Fed inflation calculator, One Dollar in 1921 was buying about $1.05 worth of goods in 1929.
Using the 2009 low, we see that despite the deflationary picture in general (and given away by the ultra long-term view of the Treasury (^TNX) chart, we still have 10% inflation since 2009. But whether that will be additive, or subtractive relative to the Dow 40,000 target becomes an interesting area for speculation which we’ll save for the subscriber side.
There’s also the coupling effect of the global economy…so a long discussion about whether we’re running on a clock (the time domain) to blow up, or whether it’s a set percentage increase (the dollar/value domain) should be covered on the subscriber side.
CAUTION: Whenever I talk about upside potential, a downside reversal is almost always at hand.
Still, the holiday weekend is over…the world hasn’t ended, although the new generation’s Hitler analog ought to be working his way into power in a country where unemployment is high and nationalism is important, so keep a close eye on challengers to Putin/Medvedev.
Watching Brother Alexei
All of which wouldn’t be worth doing except we have a convenient country with high unemployment, strong nationalism, and frankly, a strong challenger who has already been through his Mein Kampf jail time in the person of Alexei Navalny.
You might remember he, and his brother, was boxed up by the Putanists because of politics and ultranational worries. They seem to be able to read history, like we can.
At any rate, Navalny is back in custody, and with that, calls for another jail term. But history argues that if Navalny is to be the ultranationalist analog, he will beat this rap and will quickly ascend into a position of strong challenger to Putin/Medvedev.
Or, I could be looking in the wrong place.
Muslims Taking Over France
There goes the Louvre off our tourist bucklist with video of how a Jewish journalist was spat on and called names walking the streets of France in clothing indicating his religion.
Meantime, Jews are being called on to return to their homeland is Israel and Billy Graham turns weather forecaster says there’s a storm coming with the latest ISIS beheadings.
See how easily played the liberals of France were? Think there’s a lesson in there somewhere?