A few thoughts after a chat with a friend who is trying to trade stocks in the current market and getting whipsawed by the sound of it. Here's what I think - look at the chart above, which is a monthly chart of the DOW going back into the mid 80's...
What drives a bull market like this? In my opinion, it is a technical innovation that could be called 'revolutionary'... In the above chart we see the greatest bull market in the history of the world that more or less terminated in early 2000... At the time we had in the 80's the invention and proliferation of the home / office computer which changed and created thousands of businesses and new industries around the globe. It literally changed the world. Following on from that the invention of the Internet which created a bubble which burst horribly around 2000 when everyone realized that half the companies out there were based on thin air...
Then there was a correction, and after that the world recovered... The rally that took us up after that was possibly mostly technical due to the breaks of the 2000's highs, and in my opinion wasn't really based on anything as fundamentally sounds as the rally that preceded it (optimism flowed again - and perhaps the invention of the mobile phone could also be a part of it).
Finally the financial crisis hit as the genius fund managers had been very clever with their exotic option spreads etc and had created wealth out of nothing. One fine day - *POP!*
The bounce from those lows at the end of the crisis, in my opinion, was purely stimulus inspired (and bargain hunting of course). The governments around the world injected trillions into the system to prevent a catastrophic crash. Here in Australia, the government simply gave every citizen some money and said "Go buy something - ANYthing!!!"
And now we are... where? Hanging like over-ripe fruit... No reason to rally at all. No major innovations around changing the world (yes the Ipad is cool, but it wont change the world).
The current sentiment is horrible - our belief in the genius fund managers is shattered...
Its a BEAR market.
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2 comments:
When everything seems as obvious as these most bleak times an outlier always appears from no where.
It may not be sustainable but it is inevitable that the majority are going to be confounded by the ensuing rally.
While I am in the bearish camp a surprise out of the Fed may be the turning point.
You have shared very useful chart and blog i appreciate it.
I want to thanks for sharing.
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