A remarkable idea has put my “brain on fire” since it occurred to mean at 1:345 AM today: What would have happened to the Stock Market in 1929 if there had been a widespread, Tulipmania-like competitor to investing in stocks at the September 3, 1929 all-time highs?
It is well-documented in the literature that bubbles in one class of investment are only loosely linked to performance of other investments.
We can see this working out in the Housing collapse circa 2008-2009: In April 2009 the Case-Shiller/CoreLogic 20-city housing index stood at 139.26. Although a lower-low was recorded in a few years (134.08 in February of 2012), the index was up to 198.97 in May’s data reported in July. New figures through June will be released next week.
My point is that housing has climbed 42.87% since the initial 2009 lows.
Now consider the stock market’s performance.
At the initial low (March 9, 2009) the S&P 500 posted 683.38. The day before yesterday, the S&P closed at 2,458.11. In other words, stocks are up 3.6-times what they were at the Housing bubble initial low.
There is a dynamic to “popping bubbles.” Often, you get one hell of a run-up and then a dump. The prices go from overpriced to underpriced with not so much as a sober breath in between.
It is fair to wonder “Why did stocks go down more than Housing?”
The answer, I suggest, is simply this: All assets fall into a hierarchy. The urge to maintain home ownership – especially if you have that lake house you’ve dreamed of for so long – is generally a higher priority than owning stocks. It would be logical, therefore, to expect people to unload stocks to keep real estate.
Other such relationships have been noted in the past: One of my colleagues has held that gold and silver are less firmly held than stocks. “When a big trading outfit gets in trouble in a big position, they will sell gold, silver, and event the kitchen sink, if they can, to keep their position and avoid default.”
As we try to assess what went on in the market Thursday, where stocks lost 274 points by the Dow, we didn’t see a commensurate drop in gold. Until the “old way” of viewing things, gold should have dropped, not gone up. Yet there it was – going up and this morning it has breached the $1,300 per ounce mark.
Now let’s consider the bubble in Bitcoins:
Bitcoin performance in a high stress situation hasn’t really been tested. What we do see, however, is an eerie similarity in the shape of the curve to the run-up compared with how the Dow ran up into the 1929 market highs.
(You might want to cover your eyes if you’re a Bitcoin True Believer!)
And so, we look at the market this morning little-different than our view of yesterday.
Last week I mentioned the possibility that the top is in. If you missed it, see Is the Market Top Already In?
That was followed by a pretty good call into the rally earlier this week in Rally to Our Top Call?
This morning, we are pondering the performance of our Peoplenomics daily Aggregate Index, which as you can see in this corner of the chart, slipped below a well-established trend line Thursday.
[Courtesy of our generous subscribers: Daily Peoplenomics Aggregate Index in prevailing short-term trend channel (solid) with 9-day moving average (dashed).
Obviously, if it looks like we will close under the trend line today, then we will return to cash and await developments, or simply go short.
But will that happen? Perhaps not.
As I’ve mentioned before, there some good arbitrage to be had between last night’s index expirations today’s equities expirations.
A 60-90 point upward pop an hour, or two, into trading would keep us glued to the monitor.
If someone was in big trouble, we would have expected lower-hierarchy assets (gold, bitcoin) to have begun to drop – yet that hasn’t happened, yet. BTCs were around $4,310 which is only off a bit (sorry for the pun!) from recent highs, and gold is actually up.
Another week to the final highs is possible, but we never “marry a position” and remember that “Cowards who sell and run away, live to trade another day.”
We have our track shoes warmed up on hot standby.
There’s a lot more – and that will be in our www.peoplenomics.com column tomorrow morning once we have seen what the day brings. Those “high rollers” who ante-up $40 bucks a year really do get their moneys-worth.
But even the freebies here are useful, such as today’s “Productive Ponder: What would have happened in 1929 if a convenience mass hysteria in a non-stock or bond “investment” scam has been present rather than the market blowing off? Would there have been a Great Depression if all the hype had been defused as the BTC alternative is presently providing?”
The News of Trump
Debbie got the sweats, we wonder? This as 4-COUNT INDICTMENT Federal case against Schultz’ ex-IT aide expands.
We also see how the FBI has ‘reopened’ case on search for Lynch-Clinton tarmac meeting records.
But the media meltdown continues as Trump targeted on covers of Economist, New Yorker magazines and playing the role of Carnac the Magnificent? ‘Art of the Deal’ ghostwriter: Trump will resign.
The News – Minus Trump
Exactly, Precisely Right (again)
One of the headlines this morning? Commanding officer of Navy warship in deadly collision relieved of duty.
We covered this in our June 17 Peoplenomics report and here’s what we said:
Destroyer Captain Screwed
Please allow me to share from my fount of nautical expertise won from 11-years before the mast. (Remember: I lived on a 40-foot offshore capable sailboat for more than a decade and you can’t help but learn a few things.)
1. There are two sides to a boat. The “starboard side” is the right (when facing forward – toward the bow. The “port side” is they left side of the ship when facing forward.
2. When ships/boats are crossing one another’s path, the vessel whose captain sees another vessel to his right/starboard is the “burdened vessel.”
3. The ships/boats whose captain sees a ship to the port side is called the “stand on” vessel. While crossing paths, the “stand on vessel” is obligated to maintain a steady coarse and speed as the burdened vessel is obligated to adjust speed and heading to avoid injury.
4. Viewed from another ship, any vessel will have a green light on the starboard side at night meaning that ship to right (the stand on vessel) has a “green light” to proceed on course and speed.
5. There is a red light on the port (left facing forward) side. It tells others, spying the ship we’re on, that they must maneuver to avoid collision because we are the stand on. Red light means stop, don’t his this.
It ain’t that complicated.
Anyone remotely familiar with admiralty law needs only to glance at the photos to see the destroyer was the “burdened” vessel and always has the duty to maneuver to avoid collision.
The only possible defense for the captain in this ill-fated situation, which may have caused the loss of 7 sailors, is if the Philippine ship changed course and speed.
Otherwise, look for a negligence court martial after what should be an admiral’s mast to determine facts.
The damage on the starboard side amidships is pretty damning evidence.
Fog, cargo carrier course change, avoiding yet-another vessel not mentioned or terrorist speed boat (no mention) are about the only things that will keep the skipper out of harms way now.
As we predicted, the officers involved are screwed.
I mention this as a kind of “follow up” to the discussion we were having yesterday (Where did Variety get the Williams “death threat” tip?).
In addition to looking at the source of a news story, just understand the rules of conduct, due process, and procedures, will often set reasonable expectations as to outcome. In the case of the ship tragedy, two months in advance.
Off to do the to-do, so adieu to you, I’m through.