History doesn't repeat itself, but...

Hello METAR!

I have been quietly enjoying the breadth and depth of ideas and discussion on this board as a part of ‘the audience’ for over 10 years.

Thank you all, for sharing so much great stuff over the years! In particular, thank you to Wendy.

But I realised today, I have never shared a single thing in return.

How rude of me! So here is something to ponder and enjoy, while the boards reincarnate.


I am not in any way a fan of charts, or TA.

But I have a friend whose passtime is to present representation of past-time vs present… :slight_smile:

He shared this with me.

https://i.imgur.com/aJ8c1rA.jpg

This graph shows three lines, on two scales.

The faint lines are the SP500 during the bubble and crash of 2000-2001 and 2007-2008.

The thick yellow line, … with 13 weeks to run at the end …, is 2021-2022.

The degree of correlation shown here seems almost absurd - even to me.

Nonetheless, it appears the patterns of fading and recovering euphoria and panic in bubbles this century, might show up in other ways besides those captured by mungofitch’s 99-day rule.

Notably, this overlay was produced 2 days ago.

Before the market drop of the last two days.

Rather spooky, isn’t it? Certainly makes you wonder.


Best wishes to all on METAR and I hope the new version of the boards will be a big success.

LM


p.s. I am 100% in cash and hopeful that we will visit SP3000-3300 in the next 4-8 weeks.

p.p.s. A big hi-5 to all my fellow market bears.

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Good to hear from you, and have a ten year tardy Welcome!

Cool charts.

david fb

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Spooky. We have another 10-20% to go if history rhymes.

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Hi, luxmain! I’m pleased that you enjoyed my writing.

I think you would enjoy the book, “Manias, Panics, and Crashes: A History of Financial Crises,” by Charles P. Kindleberger. Every bubble has a “convincing” story and they all have blow-out run-ups before they burst.

<I am 100% in cash and hopeful that we will visit SP3000-3300 in the next 4-8 weeks. >

Look a little further out. The 2000 bubble burst didn’t bottom until March 2003. The 2008 bubble burst didn’t bottom until January 2009.

A few months ago, I thought the bottom of this bear market might be in October 2022 but now I think it may take longer since inflation still isn’t under control and the Fed is determined to quell it.

See you on the other side. Be careful out there!
Wendy

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Hello Wendy, it’s nice to hear from you.

Hi, luxmain! I’m pleased that you enjoyed my writing.

The Control Panels have been a must-read for a long time now :slight_smile:


I think you would enjoy the book, “Manias, Panics, and Crashes: A History of Financial Crises,” by Charles P. Kindleberger. Every bubble has a “convincing” story and they all have blow-out run-ups before they burst.

Thank you for the tip, I haven’t read that one yet. I’ll put it on the list.


Look a little further out. The 2000 bubble burst didn’t bottom until March 2003. The 2008 bubble burst didn’t bottom until January 2009. A few months ago, I thought the bottom of this bear market might be in October 2022 but now I think it may take longer since inflation still isn’t under control and the Fed is determined to quell it.

I think you’re right, and I think it’s possible, maybe even probable that we’ll see the SP500 bottoming out around 2500-3000.


The SP500 was at 2500 in March 2020, which was only a modest crash by historical standards, and also that level in December 2018, which was only a modest correction.

If we see either a very deep crash, or, a return to the valuation norms of ‘normal’ interest rates or inflationary economics, or if some unexpected shock event shows up - China? Russia? Supercovid? - then I think seeing SP500 in the 2500-3000 range is extremely possible.

I have the feeling many investors don’t worry much about the daily threats of nuclear attacks mentioned in the press, or shells landing just meters away from large nuclear power stations. I do actually worry about that a little bit.


The 2000 bubble burst didn’t bottom until March 2003.

I would argue that in one sense, the 2000 bubble didn’t stop bursting till 2009, if you look at valuations relative to earnings rather than just nominal prices.

If you look at (https://www.multpl.com/shiller-pe), the period 2003-2007 seems like a pause in a much larger decade-long mean-reversion.


And in another sense, the 2000 crash never stopped, or at least, the recovery is still to come, particularly outside the USA e.g. Spain, Italy, for example. I mean, the FTSE100 was around 7000 back in 2000, and 22 years later, today, the same - closed at 7018 today. The same with many other world indices.

In the USA - Large, high-margin, successful, world-leading, market-dominating companies like Intel, Cisco, still aren’t anywhere remotely near their peak levels of 2000… And I can think of countless banks that have never recovered to the levels of 2008 - the ones that still exist.

Some kind of long term disaster has taken place, and it has been hidden behind a tsunami of cheap or free money for more than 2 decades, ‘There Is No Alternative’, and the hyped up tech sector.

I think there is a sense in which the crashes of 2000 and 2008 overlap economically and the effects continue to this day, and now that the tsunami of central bank money is receding, the problems of the last 25 years may re-emerge from the waters and be seen to have not entirely gone away. Especially outside the USA. But I suppose I’m talking of an economic shock more than just a stockmarket shock here.


So why would I invest at SP3000-3300 - or at all! - if I believe all this?

I’m in a slightly different situation to most people on TMF USA in that I am ‘young’ (well, a good distance under 50, at least), and come from a background of poverty and do not expect to inherit much. By the time I went to university, no one among my family, extended family, or perhaps 30 closest friends, had ever bought stocks, including myself. Even ‘going to university’ was quite the novelty. I’m in Europe, not America, so the ‘cult of equity’ is absolutely not present.

Thanks to that poverty and lack of ‘faith’ in stocks, I am a very defensive investor, extremely loss-avoiding, but I caught the waves upwards in 2009, 2012, 2016, and 2020. Too much time spent sitting in cash inbetween, though, it turns out; I never believed central banks would print so much money for so long.

But I realised this year that ‘defensive’ must take on a different meaning in a time of high inflation. I do not believe central banks are acting as forcefully as will be needed to bring inflation back to 2% any time soon.

It would be life-changing for me to catch the very bottom of the market. But it will also be life-changing, in an extreme and terrible way, if I fail to catch the market at all, and end up sitting in cash during a long period of extremely high inflation.

I prefer to take the middle road. I’ll pay prices I consider reasonable assuming a wide range of possible economic futures, and I’ll rebalance to exploit bargains, if the market keeps dropping after I buy. Berkshire is a wonderful thing to have in the toolkit, in that regard.


One other comment, regarding crashes, just while it’s in my head.

The drop in the US market looks extremely strange when viewed from outside the US right now. Here is the S&P 500, priced in pounds - click ‘YTD’. You may have difficulty spotting the ‘crash’. The pound is absolutely not the only currency that has this perspective - yen, australian dollar, norwegian kroner, korean won. To some degree, the euro. Take your pick.

https://yhoo.it/3r3BtNn

Despite my (and Wendy’s) better judgement, I couldn’t resist picking yp some Citibank (C) today as they seem to have fallen off a cliff and landed sub-terranean - but of course will likely go lower :slight_smile:

Jeff

Even in 2023 it is possible the bottom does not unbury itself. The FED wont come to the rescue. Careful with the banks. If Chinese counter parties to western swaps melts away? That might be worse than Putin’s nuclear option. Quite literally people may starve.

(I must admit when I wrote my post outlining how the market may well go to SP2500, I was rather hoping someone would tell me that I was wrong. Because I’m currently looking for work, and the job market in 2001 & 2008-2010 was absolutely nightmarish, and I don’t particularly want to go through that again.)

Jeff, an idea in relation to banks. It may be worth using mungofitch’s in-the-money options approach. You could let some other person take the risk of banks dropping through the floor as they did in 2008, with declines of e.g. 90%+, yet benefit from the profit if a recovery (or period of high inflation in excess of the implied interest costs) shows up.

Citibank (C) today as they seem to have fallen off a cliff and landed sub-terranean

In the last year C has fallen from $72 (cheap dollars) to $44 (expensive dollars), and measured in euros, yen, etc, they have hardly moved much at all.

In contrast, in 2007-2009, Citigroup fell from $566 (cheap dollars) to less than $10 (expensive dollars). In euros, they also moved quite a bit.

I feel a drop of over 98% characterises better what banking stocks are capable of, in terms of ‘off a cliff and subterranean’, than a drop of 39% would.

But perhaps I’m just a cheapskate investor - anything less than 50% off hardly even piques my interest :wink:

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