xjo - weekend charting and chat, page-9

Hi V8,

Josh Brown (aka The Reformed Broker and an advisor with Ritholtz Wealth Management in the U.S.) has had similar concerned thoughts on his blog with several articles on "The Relentless Bid".

In one of the articles he says:

'Believe me, I am highly aware of the fact that “Relentless Bid” can be misconstrued to represent some kind of “new paradigm” that could persist forever. I want to make it clear that I believe the very opposite – that it will suck in the maximum amount of people taking the largest amount of risk just at the point where it will come to an ignominious end. But as in the 1901-1907 example, miconceptions can persist for a very long time before they’re debunked.'

It's been often stated and events eventually prove it false - the business cycle is dead.

A history of such thinking and how the thinking repeats can be found here:

http://www.frbsf.org/economic-research/publications/economic-letter/1999/may/changes-in-the-business-cycle/

The article by a "Visiting Scholar at the San Francisco Federal Reserve Bank" came out in May, 1999 - when similarly optimistic thinking was pervading markets, i.e., the business cycle is dead - i.e., recessions are a thing of the past.

Given the date of the article and it's appearance just as the dot.com boom was coming to its peak, it is surprisingly prescient. The article looks at Expansions and Contractions since 1854.

Towards the end, the author Carl E Walsh, Professor of Economics at UC Santa Cruz, states:

"While the U.S. economy has enjoyed two consecutive record expansions, a longer historical perspective does help to remind us that business cycles are unlikely to be gone for good. Despite talk of the “new economy,” all economies experience ups and downs that are reflected in swings in unemployment, capacity utilization, and overall economic output. Though changes in the structure of the economy may alter the extent of these fluctuations, they are unlikely to eliminate them."

All of this is a reminder of the hubris displayed by the famous economist, Irving Fisher, who stated, just before the 1929 Wall Street Crash, that the market had reached a "permanently high plateau".

Redbacka