-- Scrubbing Bubbles (@ .), March 16, 2000

Answers

Scrubbing Bubbles,

Thank you for the excellent post.

ps Great handle.

-- J (Y2J@home.comm), March 16, 2000.

Please do provide the source and a link if possible. I could get hypnotized by the graphs.

-- Sybil (yy45@sybil.com), March 17, 2000.

Here they are, Sybil. I know what you mean by their hypnotic effect. (Thanks, Scrubber.)

Dow Jones 1895-1909

Dow Jones 1910-1919

Dow Jones 1920-1929

Dow Jones 1930-1939

Dow Jones 1940-1949

Dow Jones 1950-1959

Dow Jones 1960-1969

Dow Jones 1970-1979

Dow Jones 1980-1989

Dow Jones 1990-1999

-- David L (bumpkin@dnet.net), March 17, 2000.

Thanks, scrubber.

These graphs are definitely representative of the market overall, not to mention quite a memory-jogger on history. I left the market in the early 1980's [notice the low thereabouts.] I don't remember when I got back in [but surely it was at a high], and got back out again in summer of 1998 [notice the low again.] Buy high, sell low...it's not my MOTTO, but certainly has been my EXPERIENCE. Actually, the bail in the 1980's aside, I did quite well previous to my bail in 1998, so I can't complain. In retrospect, I could have made more money had I stayed in, but hindsite is always 20-20.

-- Anita (notgiving@anymore.thingee), March 17, 2000.

Latest installment from Silicon Investor: The Contrarian

In the mania chronicles... Here's one from a regular reader:

"I know this guy, he's a police officer, that recently got into the stock market about six months ago. Nothing unusual there. What's odd is one of the ways he picks the companies that he invests in.

"When he's hanging out at Starbucks, he'll grab one of the papers that someone's already read (the fiscal responsibility pretty much ends there) and look for the stocks whose symbols are accented in bold print. If they're in bold print, then they have to have a good marketing department, he says.

He recently found and invested in TALK.com (Nasdaq: TALK) this way. Said he had no clue what they do, but that everyone has to talk so it has to be good. I could go on, but I don't think it will top that, so I'll just stop right there."

And here's another one from a reader that puts a new spin on the idea of what constitutes personal injury...

"My roommate referred his girlfriend to me for financial advice. She started off explaining to me how she'd hurt her back and had a choice of accepting a $10k settlement or holding out for more in case she needed surgery in the future. I started to tell her I knew a personal injury lawyer who could... but she corrected me and asked - `Should I take that $10k and buy a stock?' She continued, `My girlfriend said just to take the money and buy a stock.' I realized just how pervasive this mania has become.

"I tried to explain that the market could not be expected to be so kind as it has seemed to be over the last year, nay five, nay 10 years; that historical averages of equity returns were below 20 percent; that one of the great companies can open up the next day 35 percent lower in value (PG); and that there are other financial instruments like bonds. She didn't want to hear this and I lost her attention. So I asked: `Do you owe anything on your credit card?'

"Yes, of course, at 20-percent interest. What else could I advise her, but that she should use the cash to pay off her credit card. Then she began with the `yeah, but isn't this just a time when the markets are, you know, so growing.' I tried to explain price multiples and how the `growth' was really a growth in the perceived value of equities.

"She let out an 'ugh' of exasperation. I could see that she only wanted that hot tip. I really can't blame her when I see the Ameritrade commercials and mutual fund ads. The sad part is that these people will get left holding the bag when Goldman and Merrill decide the party's over."

Yesterday's moonshot was fueled by some massive fund positions that had to get worked out by options close-out today. Today we reverted to form: Dow wanders around, S&P sneaks a bit higher, Nasdaq climbs. Note in the above charts what happens repeatedly when the slope of the market gets steep for a sustained period. Note how much faster the average drops than it climbed.

And yes, things are different this time. The slope is much, much steeper.

-- DeeEmBee (macbeth1@pacbell.net), March 17, 2000.

DeeEmBee, your reply reminds me of a chapter in The Money Game by Adam Smith (the guy with the TV show, not the economist of centuries ago), where he gives highly amusing anecdotes about people buying stocks. One I recall is about a surgeon who noticed people on his train following their investments in the newspaper, so he wanted something to follow too. So at the surgeon's insistence, his broker put him in some highly volatile stocks, only to later receive a frantic phone call from the surgeon. "I have to do an operation in ten minutes, and all I can think about is California Computer!!" After he was calmed down by his broker, he successfully performed the operation (a removal of some organ), and with appreciation sent the removed part to his broker as a gift.

-- David L (bumpkin@dnet.net), March 17, 2000.

Good graphs Scrubby. If history is any indication of what to expect in the future, we should expect to be below DOW 5000 sometime this year, and in one hell of a depression.

-- Hawk (flyin@high.again), March 18, 2000.

Hawk-we love ya, and all that, but would you care to revise your prediction for Dow 5,000 and a depression?

-- FutureShock (gray@matter.think), July 24, 2000.

Nope, sorry FS. There is still a BIG crash coming, it is inevitable. I may have underestimated the ability of TPTB to stall it off, but that's because even they didn't expect the sheeple to be so stupid. Now that they know people are stupid enough to borrow money to invest in nothing, they are going to put as many in debt as possible before they pull the rug out from under them.

The upcoming economic crash will be the nail in the coffin for the middle class, forcing them into the ranks of lower class government-dependent slaves for the elite establishment. There will be little need to use firearms to control the masses, they will use signed documents and computer databases as their weapons, holding them hostage until the day they die.

-- Hawk (flyin@hi.again), July 25, 2000.

Hawk:

I must say I admire your passion and committment to your point of view. I did not ask this to goad you in any way; I really was curious on your current take, in the light of your post about the big "die- off". You will either be a prophet or dramatically incorrect, but hats off to you for having the gumption(though I disagree) to stick with your take on this matter.

-- FutureShock (gray@matter.think), July 25, 2000.

FS:

You have to forgive Hawk; I think he is being groomed to be the next gary north and hasn't gotten it quite right yet! See, old hawky has been preachin' doom-n-gloom for years now...well heck, just look at this old DOW thread from Stinkbomb One:

OT DOW

some select quotes:

Lets see... God almighty Greenspan will speak on November 16, so the knees will start shakin sometime next week. The herd will be thinkin..hmmm, wonder what will happen if he raises the rate again? There isn't much holdin up this bubble, jeeez, better sell some to be safe. Everybody will start to see once again that there isn't much real confidence in the market, only confidence that more idiots will be persuaded to buy. But when they start selling again..uh-oh.

Good chance of another black Friday on November 12.

-- Hawk (flyin@high.again), November 04, 1999.

The NASDAQ is being inflated by the FEDS and is going to crash bigtime when all the big players collect their profits first thing in January.

-- Hawk (flyin@high.again), December 24, 1999.

Of course, the past WRONG predictions from hawky are no detriment to him mouthing off in the present....at least he has learned that from scary gary!

BTW hawky....NASDAQ was over 3800 in Jan....where is it now???....not much of a "tank" there, boy! tee hee! but you keep trying!)

-- hawky is really (just@gary.wannabe), July 26, 2000.

I was at a conference about a month ago and met this very nice, successful business gentleman who told me that he subscribed to three private market journals, and that he had done so only after exhaustive research about which were the best to buy. One Californian fellow he subscribes to predicted four years ago the DOW's uppermost top, and was correct for his number. It never went further than what he had predicted. This same fellow along with the two other researchers have been saying for some time that the market will slump in August-Sept. 2000, and that it would not jump back as it has been doing, but slide into a long bear market. I asked this gentleman if his seers thought the market could go down to 7,000, and he said that they didn't think it would go much lower than that.

I have absolutely no way to judge the validity of what this gentleman said, and I don't have any money in the market regardless, so it was purely a theoretical discussion to me. It appeared he had long and carefully followed the markets, and he certainly had no personal stake in what he was telling me.

In any case, I'm curious to see what might happen to the market this fall, and if this gentleman at the conference and his researchers are correct.

-- Celia Thaxter (celiathaxter@yahoo.com), July 26, 2000.

interesting you should show this. it think it needs to be noted that we really DONT KNOW if the market is overvalued or not because after studying it with my own models recently, one can come to the following observations:

(1) The DJIA is increasing, on average, over history.

(2) The DJIA's rate of increase (acceleration, plot log[djia]) is increasing over time.

(3) The DJIA's increase in acceleration ("jerk", plot log[log[djia]]) is increasing.

(4) The DJIAs increase in "jerk" is increasing over time ("jolt", plot log[log[log[djia]]]).

(5) There is a 40-year sinusoidal pattern in the errors generated by a model of the DJIA derived from studying the market's "jolt."

What does this mean? I think it means a market slowdown by the end of the decade, and an evaportation of the big 20% gains we once saw nearly every year, down to average gains of 4-8% a year for awhile.

The geometric increases in the stock market have actual historical causes: in the 80s, regulations and taxes on businesses were eased. In the 90s, the budget deficits went down and the highly efficient, computer-driven, JIT and B2B measures were put into businesses, making them more competitive and global.

Growth will continue, but the djia is skewed toward bigger, rustier companies. When there will be a mass exodus of capital of baby boomer investments around 2010, this will hurt or at least slow the economy. High-risk/high growth investments like biotech or computers will still rake in big yields but you will to have a good eye for the winners. Conventional savings bonds and CDs will have much more appeal to people who want less risk.

-- coprolith (jacothecat@yahoo.com), July 26, 2000.