Real DOW Update: Still looking for a bottom? Eric Janszen

[Vinyasa123]

Re: Real DOW Update: Still looking for a bottom?

There are two ways to play this perhaps. Neither is right. Probably more to do with your personal make up and state of paranoia about what others are going to do to you if things really collapse. I believe things get worse before they get better but we have a choice and need to seperate economics and wealth from living.

1. You can join humanity and protect yourself at the same time through well managed investments in gold, silver coins, inflation hedges like Rydex rising rate funds and VERY, VERY select corporate bonds and even some equities. Companies like Cisco will own every significant technology patent because they have the cash (I am in the sector and have never seen such breakthrough's on sale in 20 years). The strong cash rich companies that can withstand massive upheavel come out on the other side and are going to dominate the world economy and they frankly aren't that hard to pick but you need a 10 year horizon for that part. That said I think we will see many of them come down another 25-30% after a potential strong rally on news of a reasonable approach to cleaning out the toxic assets and a somewhat better than socialism outcome of congressional negotiations on the packages. I voted Obama and am stunned, not by the taxes as that was a promise, but the social engineering he is doing already. Man was I a fool. I am always willing to help the weak but not just those that don't have what I have. there is a big difference.

2. You can choose to head for the hills and live in a bunker as a curmudgeon(sp) and teach your children and loved ones that when things look bleak say FU to your neighbors and fellow man. Unless you think we are going the way of Rwanda or real violent tribal war fare versus civil unrest (which I do see) and need to leave (I suppose its possible). living overseas is a wonderful experience for many reasons and now isn't a bad time but if you think we have it bad try the countries that were selling all that crap to us (whether it be lead toys, nasty pharmaceuticals or oil). At least we have a sevice sector. The US is STILL the largest mfg in the world.

I am personally and optomist and have started a couple of companies that sold for a fair amount of money. i have given back 1/3 of it thinking I was conservative and while furious and angry I fight it everyday.

Who wants to live in a world that some of you want to foster. Better to be part of the solution than to leave it to others to fix. Run and hide or help fix it while taking measures to secure your family and loved ones?

Sorry for the non economic tirade here but the guns and fall out shelter are part of the problem in this country. It is just another way of saying I'll get mine. If you have never lived anywhere else, our worst standard of living is still better than 95% of the world. FYI: New idea for fall out shelters: My fall out shelter is my wine cellar with 500 bottles and enough food for two months under the theory if it gets really bad i am going to drink my self so silly on great cabs and pinot noir)

[Rajiv]

Re: Real DOW Update: Still looking for a bottom?

Yes it would be nice to see a inflation adjusted DJI using the shadowstats inflation measure. You are correct in that, then we may not have that far to drop!

The corollary to that is that the Dow was not that far overinflated, and that we were not as welathy as we thought! Or that the 1.64% real growth rate is in fact unsustainable!

[aa]

Re: Real DOW Update: Still looking for a bottom?

Woohooo!!! Bring it on!!!!!

I am a buyer of stocks and my plan is to dollar cost average the market for the next 20 years. The lower it goes the better as far as I'm concerned.

Imagine you had bought stocks every month between 1930 and 1950 .... or every month between 1968 and 1988.

[Rajiv]

Re: Real DOW Update: Still looking for a bottom?

Actually, if you held the companies that made up the DJI in 1930, and you held the same stock without trading, it would probably be worth very little today

See DJI

The individual components of the DJIA are occasionally changed as market conditions warrant. When companies are replaced, the scale factor used to calculate the index is also adjusted so that the value of the average is not directly affected by the change.

On November 1, 1999, Chevron, Goodyear Tire and Rubber Company, Sears Roebuck, and Union Carbide were removed from the DJIA and replaced by Intel, Microsoft, Home Depot, and SBC Communications. Intel and Microsoft became the first two companies traded on the NASDAQ exchange to be listed in the DJIA. On April 8, 2004, another change occurred as International Paper, AT&T, and Eastman Kodak were replaced with Pfizer, Verizon, and AIG. On December 1, 2005, AT&T returned to the DJIA as a result of the SBC Communications and AT&T merger. Altria Group and Honeywell were replaced by Chevron and Bank of America on February 19, 2008. On September 22, 2008, Kraft Foods replaced American International Group in the index

[labasta]

Re: Real DOW Update: Still looking for a bottom?

I'd be interested in the shadow stat inflation figures too.

To be honest (I've said this before), why does it have to be a curve? From 1924 to 1984, it could be a virtually horizontal straight line.

If the shad stats are included, then the curve just might become more of a straight line until 2008.

[jimmygu3]

Re: Real DOW Update: Still looking for a bottom?

Woohooo!!! Bring it on!!!!!

I am a buyer of stocks and my plan is to dollar cost average the market for the next 20 years. The lower it goes the better as far as I'm concerned.

Imagine you had bought stocks every month between 1930 and 1950 .... or every month between 1968 and 1988.

Assuming you had cash to buy through the depression, 1930-1950 dollar cost averaging would have returned 5.3% annually while CPI averaged 2.9%. 1968-1988, not so good, as your 6.8% return would be largely eaten up by 6.3% CPI. Nothing compares to the 1980-2000 FIRE economy stock boom that we are all still waking up from. You would have had returns of 13.8% with only 3.8% CPI.

But you're right- if your time horizon is long, it's not a bad time to wade in. Certainly less downside than we've had in a long time.

Jimmy

[MarkL]

Re: Real DOW Update: Still looking for a bottom?

If I buy not only into "Ka" but also into "Poom" (which I do) then I would also buy into this curve banking sharply upward after it bottoms.

Eric... to imply that this curve will continue into the future as shown (with moderate inflation), seems to contradict (or at least ignore) the "Poom" /inflationary portion of your own theory. Let's estimate the bailouts that have been and will be made, and include the "Poom" inflationary effects to paint this graph properly and fully reflect the amazing vision you've given to us all. What happens after it bottoms?

[sn1p3r]

Re: Real DOW Update: Still looking for a bottom?

So where does the 1.64% yield curve number come from? Is this backed into based on a historic controlled growth?

[swgprop]

Re: Real DOW Update: Still looking for a bottom?

Woohooo!!! Bring it on!!!!!

I am a buyer of stocks and my plan is to dollar cost average the market for the next 20 years. The lower it goes the better as far as I'm concerned.

Imagine you had bought stocks every month between 1930 and 1950 .... or every month between 1968 and 1988.

You might be interested in reading a recent article by John Mauldin. He basically debunks the notion of buy and hold. Most people would consider a twenty year time frame to be "long term", but he stratifies 20 year segments showing that some are winners and some losers.

[orion]

Re: Real DOW Update: Still looking for a bottom?

Zoog,

Thanks for the reply. I have done some searching and found this paper from Georgia Tech (http://mgt.gatech.edu/fac_research/centers_initiatives/finlab/finlab_files/ga_tech_dow_gdp_2007.pdf)

I can't figure out how to extract graph of nominal GDP vs Dow from 1916 to 2006 but you should look. Essentially they track each other except;

1) 1920 to 1940, when Dow peaks way above GDP especially in 1929
2) 1969 to 2000 the Dow falls below GDP line and does not catch up until 2000 or 2001

Here is an excerpt from paper describing this;

One year of departure was 1929, when the Dow industrials averaged 311.2, exceeding
GDP of 103.9($Billions) by nearly 200%. By 1932, this discrepancy had been all but erased,
with the Dow industrials averaging 64.6 as compared with GDP for the year of 58.5($B). After
another brief departure in the late 1930s, the Dow industrials correlated closely with GDP
through the late 1960s. Even in the bull market year of 1966, the Dow industrials averaged
873.6 in a year in which GDP came in very closely at 787.8($B). In 1968, the two measures
were almost identical. After 1968, the Dow industrials and GDP parted company again. GDP
moved upward as the U.S. economy continued to grow, at least in nominal terms. However, the
Dow industrials lagged, as the market doldrums of the late 1960s, 1970s and early 1980s gained
a stronghold. The disparity between the two grew as oil shocks, inflation, and high interest rates
took their toll on share prices. In 1982 the Dow industrials averaged 73% below GDP. That
year, 1982, was the first year of the super-bull market that ran into 2000.
In this light, the bull market of the 1980s and 1990s can be seen as having been a case of
catch-up, where the Dow worked its way back toward GDP after having been left behind
sometime in the late 1960s. For example, as recently as 1994, the Dow industrials averaged
more than 46% below GDP. However, by 1998, as the bull market accelerated, the difference
between the two was eliminated.
In 1999 and 2000, the Dow industrials exceeded nominal GDP. During 2001, however,
with declines in the Dow and increases in nominal GDP, the two measures were once again,
nearly identical. Continued weakness in stock prices during 2002 resulted in the Dow averaging
about twelve percent less than nominal GDP. Then, beginning in early 2003, with the Dow
average trading below 8,000, the most recent bull market began, moving the Dow to close the
gap with nominal GDP. The Dow’s recent peak above 14,000 was slightly higher than nominal
GDP of 13,700($B), annualized through the second quarter of 2007.

[ASH]

Re: Real DOW Update: Still looking for a bottom?

So where does the 1.64% yield curve number come from? Is this backed into based on a historic controlled growth?

It looks to me like they chose a cutoff date (say 1995?), after which the stock market behavior was deemed to be "aberrant", and then did a fit to the data before the cutoff date. Perhaps the thought was to find the average rate of real asset price growth, absent asset price inflation related to the FIRE economy. One might then think we'd see a return to the non-FIRE price levels, after the FIRE economy implodes. Of course, by choosing to discard "aberrant" data when making a fit, one guarantees that said data then looks aberrant when compared to the fit.

My impression is that this analysis has value as a "big picture" look at the stock market, but -- similar to plots of the DJIA-to-gold ratio -- has little quantitative accuracy. In other words, it was a great way to see that stocks were overpriced when they were outrageously overpriced, but probably can't be relied upon to find a quantitative bottom in the market.

[Andreuccio]

Re: Real DOW Update: Still looking for a bottom?

There arn't any freeze dried chocolate souffles btw.

Pre-SHTF business opportunity?

[FRED]

Re: Real DOW Update: Still looking for a bottom?

If I buy not only into "Ka" but also into "Poom" (which I do) then I would also buy into this curve banking sharply upward after it bottoms.

Eric... to imply that this curve will continue into the future as shown (with moderate inflation), seems to contradict (or at least ignore) the "Poom" /inflationary portion of your own theory. Let's estimate the bailouts that have been and will be made, and include the "Poom" inflationary effects to paint this graph properly and fully reflect the amazing vision you've given to us all. What happens after it bottoms?

Why do you say that? If the DOW stays flat and inflation spikes the Real DOW will fall like a rock.

[ggirod]

Re: Real DOW Update: Still looking for a bottom?

The Real Dow seems to require some interpretation depending on what you want to predict. For example, if it were to fall like a rock (which today seems rather likely) then it would hit the line at maybe 4500, but that would correspond to an actual DJI price of maybe 5500 or so. Then inflation might buoy up the prices (but not the Real Dow) after an undershoot dip below the line. We are not all that far from the projected value.

So, you have to think a lot about interpreting the results. The bleak look of the values is because they are already inflation adjusted, something that most investors do not consider all that well. In fact, if they considered inflation they might not generally be investors. However, there are some other possible interpretations. If, after a flirtation with the 4000s in Real Dow, the prices start to track the curve, then that says that the raw DJI prices would be keeping just a bit ahead of inflation whatever the rate was. That prediction would imply that acquiring stocks in the dip below the line might be a good hedge vs moderate, not hyper inflation, especially if you have some gold already.

Are my interpretations right? Are they even reasonable? Can somebody offer a clearer explanation and maybe a family of predictions?

[bart]

Re: Real DOW Update: Still looking for a bottom?