The Brains Trust - 2021, page-1230

WARNING: serious navel gazing from a man in Lockdown .... go to next post if you want to avoid!!!

When I go on my daily bike ride I often listen to some podcast or other; often finance/market/economy related relate. Today I was listening to someone drone on about "diversification" and the need to be in the market! I sort of tuned out & found myself trying to come up with some parameters of

How dangerous are current markets?

It seems to me that the landscape for the world have sort of taken a dive to the south in the last 18 months.

Lets see what has escalated:
- Covid-19 Unprecedented .... or should it be; was it just a matter of time?

-Debt .... Debt the cause of the GFC and we have solved that by ..... MORE DEBT!!!

-Inflation, Deflation or some other THING? see my post from weekend.

-oversupply of money and slow or NO velocity of money

-explosive property bubbles around teh world it seems

-China; what is China up to? They have significantly changed their stance in the last couple of years. Is it anything more than a Billion people ++++ wanting the standard of living we take for granted? I suspect nothing more than that really BUT I also suspect there is not going to be smooth way for them to get that standard of living.

-Lots of "people" now openly talk of war; something that has been too scary for pollies to say out loud since the Cold War. I have heard quotes from Oz pollies and Chinese "representatives" recently openly treaten the W word SCARY INDEED>

-Interest rates; they are so low and reserve banks have pledged to keep them low. So linked to most of the risks above. I still believe that this MUST BE A killer at some stage; the WORLD from companies to so many home buyers are fully leveraged to interst rates of say 2% ... a modet lifyt of say 1% means their outgoings go up 50% ... a crippling increase for many businesses and personal P&L's.

& other macros that remain equally as serious but just rumbling along
-Climate change and consequential energy impacts

-Middle East situation

Not a rosy picture hey?

So thought I would look at some index charts: These are fairly rando but I will screen shot and share because a ew like the pictures I share!

1st question I asked is how significant are the "recent" big corrections in the SM (I am using the Dow basically because I have data on PRT going back to 1930. Also log chart because they are more meaningful over such a time frame. What is "significant" I selected 35% really just by looking at chart and seeing there are lots in the up to 20% but very few over 35% .... it looks like this:




Answer: 3 drops of > 35% in 13 years are very very significant.

The next thing I thought of is how unusual is it that markets recover in about 12 mths from a dramatic fall like we saw in 2020? Not only did Dow recover previous highs but it has gone up 93% since last years low .... that is extraordinary IMO. Looks like this.

This chart also shows the 443% increase since GFC lows ..... some rise.





Now I zoom out to see how significant that is?






Conclusion: The 440%+ rise since GFC not as unusual as I expected .... but it is certainly SIGNIFICANT & of itself can mean market is extended and ready for pull back

An alternative view is that last year WAS the hiccup and a pause on the way to a much bigger move ..... similar to the way the at the time crash of 1987 appears on this chart eg merely a blip on the way to much higher levels!

Which is the answer????