Category Archives: bull market

Bull Market Ranking

Slowly and deliberately, the bull market moves ever closer to the 1923 rank of 3rd place in the top 10 stock market recoveries.

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Let us consider the significance of the current market matching the rise of 1923.  In James Grant’s book titled The Forgotten Depression, Amazon has the following review:

“James Grant’s story of America’s last governmentally untreated depression: A bible for conservative economists, this ‘carefully researched history…makes difficult economic concepts easy to understand, and it deftly mixes major events with interesting vignettes’ (The Wall Street Journal).

“In 1920-1921, Woodrow Wilson and Warren G. Harding met a deep economic slump by seeming to ignore it, implementing policies that most twenty-first century economists would call backward. Confronted with plunging prices, wages, and employment, the government balanced the budget and, through the Federal Reserve, raised interest rates. No ‘stimulus’ was administered, and a powerful, job-filled recovery was under way by late 1921. Yet by 1929, the economy spiraled downward as the Hoover administration adopted the policies that Wilson and Harding had declined to put in place.

“In The Forgotten Depression, James Grant ‘makes a strong case against federal intervention during economic downturns’ (Pittsburgh Tribune Review), arguing that the well-intended White House-led campaign to prop up industrial wages helped turn a bad recession into America’s worst depression. He offers examples like this, and many others, as important strategies we can learn from the earlier depression and apply today and to the future. This is a powerful response to the prevailing notion of how to fight recession, and ‘Mr. Grant’s history lesson is one that all lawmakers could take to heart’ (Washington Times).”

The claim in Grant’s book is that the absence of market intervention will allow markets to correct and recover on their own.  Considering that the 1923 market rise was an outgrowth of the decline from 1920-1921 it is not surprising that the current market could increase as much as it has from the 2009 low. 

In fact, as we’ve continuously argued since February 2009, markets work in spite of government intervention. As highlighted in the chart above, with or without a Federal Reserve, the current stock market recovery is not unusual and has the potential to increase to the 1929 (29,207.53) or 1987 (44,474.68) recovery levels.

Bull Market Ranking

Have we reached the top in the market?  We don’t know.  However, what we do know is that the current market run from March 9, 2009 peaked on January 26, 2018 at 26,616.74 for a gain of +312.66%.  Among the top ten bull market runs, since 1835, this would rank as number four.

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Bull Market Ranking

Since January 2011, we have advocated against the claim that the Federal Reserve was responsible for the rise in the stock market.  Our theory has always been based on the precedent of stock market data which can be traced to periods in American history when there was no central bank.

In February 2014, we compiled enough of the necessary stock market data to show that:

“The most important concept that should be taken away from all this data is that a central bank did not exist from 1836-1914. There was no way to ascribe the gains of the market to the Federal Reserve. All iterations of a central bank with the First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836) did not have any effect on the data sets that we have provided from the period of 1836 to 1914. In order for the claim that the current market run is based on the monetary policies of the Federal Reserve, we’d need to be able to demonstrate that the stock market would have behaved differently without the existence of a Federal Reserve (February 17, 2014).”

In that same February 2014 posting, we listed the market percentage gains that were experienced when there was no central bank in place.  We averaged the gains in the seven market cycles while having no Federal Reserve and showed that the average gain would have brought the Dow Jones Industrial Average to 17,500.  However, as time has passed and the Dow has increased, we’ve shown what the next level the Dow would need to go to in order to exceed the next highest bull market (on a percentage basis).  In November 2014, we said:

“If the Dow were to go to the extreme of rebounds with no Fed (1857-1864), then in theory the index could climb as high as 24,840 (November 2014).”

On December 18, 2017, the Dow Jones Industrial Average increased to the 24,840 level on an intraday basis. The gain from the 6,450 level is approximately +285.11%.  We think that the stock market’s ability to rise to the current level has been more about confidence in the economy and less about actions taken by the Federal Reserve.  Below we show the ranking of the current bull market to put the market action into perspective.

Dow Altimeter Review

In the period from 1920 to 1989, the Dow Jones Industrial Average would consistently be undervalued or overvalued at set Altimeter levels (15 and 30, respectively).  An investor could almost count on these general points to accumulate and sell stocks without fail.  Note the various dates when a “sell” or “buy” indication was given.  All points until after 1987 were useful indications for market under or over valuation.

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After 1987, the Altimeter for the Dow Jones Industrial Average started to change.  What has changed that made the Altimeter vary so much from the normal levels?  We think it has to do with the selection of companies that are included in the Dow Jones Industrial Average with less of an emphasis on dividend payments, lower dividend yields and lower relative payout ratios.  In addition, inclusion of companies like Visa, Apple, Microsoft, Intel and Cisco Systems has shifted the course of the index which might more appropriately reflect the changing nature of the U.S. economy, as seen in the chart below.

Dow Theory

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New Low Team Beats NBER to the Punch

 The New Low Observer (NLO) team has done it again on the economy, stock market and our “guess” of when the National Bureau of Economic Research (NBER) would declare the end of the recession that began in October of 2007.

 

First and foremost, the NLO team announced on July 24, 2009 (the initiation of the NLO site) that Dow Theory had indicated that we were definitely in a cyclical bull market. This ignores our article on February 11, 2009 titled “Convergence of Extraordinary Forces” that indicated that there would be a bottom in the market around June 2009. According to Dow Theory, a bottom in the stock market implies a trough in the economy as well.

 

Second, on August 22, 2009, the NLO team indicated that based on the Industrial Production Index (IPI) and the Dow Theory bull market indication the stock market and the economy were headed high.

 

Finally, along with our call to the end of the recession on August 22, 2009, we predicted that the NBER would “…proclaim June 2009 as the official end to the recession.” The headline out of the NBER today, September 20, 2010, is that “…a trough in business activity occurred in the U.S. economy in June 2009.”

 

Some of the articles can be verified with the postings on Seeking Alpha.com; which we cannot alter once published. Just look at the approximate date that the article was published since Seeking Alpha does not publish exactly when submitted.

 

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