Note what happens after each red bar.
This graph provides more precision in the placement of repetitive junctures at which the cycle transforms into its next phase.
Note that the current juncture introduces an unfolding profile that suggests the possiblity of mirroring those of the three preceding profiles which are uncannily similar among themselves. Even the two before that, 1863 and 1828, had more downside volatility ahead of them. 1828 dropped another 15% and took 2.25 years to exceed its price level at the time of its cycle juncture corresponding to the current point at November 30, 2006.
The cycle point in 1863 in the middle of the U.S. Civil War produced a further market decline of 11% and took 22 months before price bottom. (The data for the first bar is too uncertain for reliability.)
Current Commentators--both right and wrong
... including me.
As you know,
I do not believe in forecasting. And commentary is pure entertainment. Nothing in either realm of endeavor will tell you what to do Monday morning--which remains, from here to eternity, a coin toss.
There is currently a number of well credentialed analysts and managers, as well as financial media celebrities on both sides of the issue of: what's going on? Mohamed El-Erian tells in his new book, When Markets Collilde. Is it too early for Nassim Taleb to add his name (Dr. El-Erian's) to the crew of Taleb's roustabouts who believe in the bell curve in his books Fooled by Randomness and The Black Swan?
Each has his own way of accomodating himself and his followers to the myriad complexities of market behavior. I think they are both right, vigorously. Yet my way is most comfortable for me--scrutiny of the cycles, without the vocabulary and thinking of the academe (El-Erian) and the condemnation and abolition of the bell curve (Taleb).
+60,000%? Impossible. It would seem. You seldom, if ever, encounter magnitudes of that degree of gain in the markets. Yet that is the total return from stocks from 1790 to the present compounded at 8.6% per year. What happened to the +3,900% of yesterday? It did not include dividends. Oi, what a difference!
So what is the good of having a bias? I believe it prepares you for surprises bigger than what you would otherwise expect. And it reminds you that, like the sun rising and setting tomorrow, the market will change and resume its previous course of behavior. Thus, you are surprise-free and can wait with less or greater patience for the next run to commence. These are virtues to be sought and obtained.
Posted
8/3/2008 6:02 p.m. EDT
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