patrick.net

If each tier were equally spaced, the chart would represent our most previous spike as a monster.
Their are ten tiers. The top tier equals the previous nine. or, the first nine tiers equal ten thousand and the final one ALSO equals ten thousand. Why ?
We had a spurt due to the recent great invention(s) (aapl,hp,amd,csco).
DON"T buy the kayak till gubmint gets out of the water !

TMAC54 says

The top tier equals the previous nine. [...] Why ?

That's the nature of exponential growth. Remember that the Fed's mandate is to keep inflation low. Inflation is an increase in the money supply. If inflation is kept to 1%, you end up with an exponential growth curve (1% compounded annually). It doesn't matter what the % is as long as it's positive.

The last 10 years have seen the monetary base expand as much as it has in the previous 90 years (more or less) so log scale is the only one representative of proportion.

Here's a simple example: imagine you have $1 and it doubles every year. After 9 years it has grown to $512. Next year you have $1024. The expansion in year 10 ($512) equals the sum of all previous expansions, and the inflation rate (100%) remained unchanged.

Now, CPI is somewhat bunkum, but I don't know which CPI is being used here. I'll assume it's the traditional CPI so the calculation is the same throughout that period, and not the CPI used to screw people out of their Social Security.

But it is interesting to see the CPI hold relatively steady during this DOW flatline. It makes sense for it to rise during the WWs because there were actual resource constraints. The Vietnam era is really the Nixon shock and formation of OPEC, but this is an interesting, albeit somewhat meaningless graph. (Most graphs of any stock market are mostly meaningless; the only thing instructive about any of them is the demonstration of long-term exponential growth.)

cc0 says

(Most graphs of any stock market are mostly meaningless; the only thing instructive about any of them is the demonstration of long-term exponential growth.)

This one seems less distorted.

This chart shows three distinct rapid assents.
1922 to 1930 caused by - radio and Ford's production line ideas.
1949 to 1966 caused by - war ends & industrialization takes hold.
1983 to 2003 caused by - introduction to personal computers & associated I.T.
2013 to 2050 caused by - gubmint regulation, social medicine, manufacturing overseas.
Go short my friend.

Uh - that's the same graph, just taller. It adds a couple years but omits the CPI. But why omit the largest ascents?

1933 to 1934 caused by - Glass-Steagall
1935 to 1937 caused by - Social Security
1954 to 1957 caused by - Mass Polio Vaccinations
1975 to 1976 caused by - Government regulation following Watergate
1995 to 2000 caused by - Electing Comrade Clinton and NAFTA
2009 to 2011 caused by - Obamacare

Or, maybe:

TMAC54 says

cc0 says

(Most graphs of any stock market are mostly meaningless; the only thing instructive about any of them is the demonstration of long-term exponential growth.)

TMAC54 says

This chart shows three distinct rapid assents.
1922 to 1930 caused by - radio and Ford's production line ideas.
1949 to 1966 caused by - war ends & industrialization takes hold.
1983 to 2003 caused by - introduction to personal computers & associated I.T.
2013 to 2050 caused by - gubmint regulation, social medicine, manufacturing overseas.
Go short my friend.

This chart is at best a rorschach test for ideology. It can be read any way anyone wants to read it.

1. DJ soars after major US involvement in wars, 20's, 50's 80's.
2. DJ soars after deregulation of financial industry.
3. DJ soars during periods of large government spending on industry. The 1920's roads/electricity, 1950's roads/electricity part 2, 1980's military.
4. DJ follows inflation.
5. DJ follows industry inventions burst.
6. DJ soars after 10-15 years of being flat/down for no real reason.
7. DJ is meaningless because it's components constantly change.
8. Whatever else anyone wants to make up.

My own take is the first two booms follow destructive world wars in europe leaving the US in a temporary dominate position in industry. The third boom tracks very closely with amount of money in pension plans with literally an explosion of IRA's, public pension plans, and the huge wave of baby boomers coming into the work force starting in the 70's.

After WWI something like 95% of stocks were owned by individual people, after WWII the number was around 90%. Today about 70% of stocks are now owned by some type of deferred tax plans: IRA's, traditional pensions, mutual funds (again mostly pensions), insurance annuities, etc.. The same applies to bonds also. All that money pouring in from pension plans had to go somewhere, the supply of stocks is fixed at any given time so prices had to rise.

The combination of lots of easy money and deregulation led to what would best be described as a lowering of the tradition high ethical standards (heavy sarcasm in case anyone missed it) of the financial/stock industry that blew up in 2000. The huge amount of money in the system plus what was still coming in pumped the housing finance boom which also saw some minor issues of people being ethically challenged.

Now what? The 75 million baby boomers are going to take all their money out of the system over the next 30 years . Everyone else is going to try to (good luck with that) pay the bill for 30 years of living beyond the countries willingness to pay it's bills (mostly for military). I am not going long any time soon.

So after this period of inflation, the original chart wants me to believe the next 500% assent will take the Dow to 65,000.
Hang on a minute, lemme go check something.

TMAC54 says

Hang on a minute, lemme go check something.

You posted the exact same chart with a taller Y axis. What you need to check is how to read a graph.

bob2356 says

Now what? The 75 million baby boomers are going to take all their money out of the system over the next 30 years . Everyone else is going to try to (good luck with that) pay the bill for 30 years of living beyond the countries willingness to pay it's bills (mostly for military). I am not going long any time soon.

Word. Demographics are THE deciding factor.

thunderlips11 says

baby boomers are going to take all their money out of the system

I am not going long any time soon.

Word. Demographics are THE deciding factor.

The stock market isn't a bank - I don't think things are that cut and dry. If I can get someone to sell me one share of Apple for $1 in the open market, I can singly "destroy" $billions worth of value.

If there's a mad rush to remove "money" from the market, there will indeed be a huge crash, but if there's any intrinsic value in the market at all, recovery can come swiftly - all it takes is for one person to buy one share at some inflated price.

If there is a crash and stocks start yielding 500% in dividends, you know there will be buyers. The market does have an implicit bottom.

cc0 says

The stock market isn't a bank - I don't think things are that cut and dry. If I can get someone to sell me one share of Apple for $1 in the open market, I can singly "destroy" $billions worth of value.

I don't understand what you're saying here.

cc0 says

If there's a mad rush to remove "money" from the market, there will indeed be a huge crash, but if there's any intrinsic value in the market at all, recovery can come swiftly - all it takes is for one person to buy one share at some inflated price.

Sellers need buyers, sure. We have an example of a demographic crush, Japan.

Nobody is talking about all the millions of boomers selling stocks on the same day. We're talking about a gradual but steady sell off as Boomers sell stocks and buy annuities, bonds, or CDs for retirement income.

Yes, most stocks are owned by institutions, but most of those are pension plans and mutual funds. Mutual funds are owned by individuals, and pensions are responsible for paying individuals at retirement. So the pressure to sell is strong even without the main player being the retail investor.

Also, the oldest people are the richest people. 1980-2000, the boomers were in their middle ages and in what should have been their investment prime. Now the boomers will be looking for reliable income, not speculation or growth.

Gen X and Gen Y are BOTH substantially poorer than the boomers. A 35-year old male in 1976 made 12% more income despite having less than two months of post-secondary education on average. The typical 35-year old in the mid 2000s made less while having an average of 18 months of post-secondary education. I imagine it's even worse once we're able to compare Y'ers.

When stocks pay dividends, generally the value of the stock drops. The higher and/or more frequent the dividend, the lower the stock price in general. This is because a great deal of value in a stock - and the most reliable indicator of value - is cash holdings. As that cash is paid out, the stock is less valuable. If we shift away from the usual growth-biased stock market back to a more traditional dividend-driven stock market, that will put downward pressure on wages.

We've forgotten a lot of this common wisdom because between 1980-2000 we had a secular bull market and everything was about price growth. Institutionally, there are few who remember when dividends were the main concern of most retail investors.

Again, CDs are FDIC insured and don't go to zero - but stocks do. When you're 55-65-75, safety and reliability are of more interest than saving for the future. The number of people who live to 90 or 100 is very small.

Tovarichpeter just posted this article, which is a take on equities from Bill Gross:

http://blogs.wsj.com/marketbeat/2012/07/31/bill-gross-were-witnessing-the-death-of-equities/

He also predicts very ho-hum performance going forward.

thunderlips11 says

Nobody is talking about all the millions of boomers selling stocks on the same day. We're talking about a gradual but steady sell off as Boomers sell stocks and buy annuities, bonds, or CDs for retirement income.

Good luck with that. Very,very few boomers have enough retirement savings to live off the income. They will be selling stocks and bonds out of their IRA's to buy food, clothing, and pay the rent. Even the defined benefit programs will have a substantial net outflow for a long time once the wave hits. It's not possible to avoid, the big pension plans all are counting on 8%+ returns. Not going to happen.

The S&P 500 trailing-ten-year PE ratio since 1880:

http://www.multpl.com/shiller-pe/

Stocks are not cheap!

freak80 says

Stocks are not cheap!

Interesting chart but not conclusive evidence of anything. It looks like stocks cratered after Nixon/Vietnam removed us from the gold standard but the early 80s created the 401(k) which diverted some large amounts into the market. Pension investment subsequently fell, but so did the savings rate.

If there's any historicity in the present, we look like we have about 10 years of relative flatline ... flatline PE, that is. E keeps going up, so I refer back to my original comment:

cc0 says

(Most graphs of any stock market are mostly meaningless; the only thing instructive about any of them is the demonstration of long-term exponential growth.)

As for this, which I don't have time to comment on fully right now:

thunderlips11 says

Again, CDs are FDIC insured and don't go to zero - but stocks do. When you're 55-65-75, safety and reliability are of more interest than saving for the future.

The stock market is a shell game. The value swings wildly based on the buyers and sellers of the moment - it doesn't reflect any deep-seated "truth" or reality. If all the boomers sell all their stocks and put the proceeds into CDs, that's fine.

Imagine this all happens at once. I know this isn't your scenario but the market free-falls or crashes. People paid $billions for their shares and got back $millions. People who don't panic stay in the market. Dividend investors see yields skyrocket. Interest rates fall because of all the money going into CDs so the yields become more attractive. Investments (ie: stocks that give you money, as opposed to stocks that give you nothing) have an implicit bottom.

So people who need income have CDs and some of the more sophisticated go into annuities. Annuities go right back into the stock market and once the knee-jerkers are out, the only people left are those who actually value their stocks so prices go right back to where they were. The CDs become new loans, which increases the money supply, driving up inflation and juicing the economy.

It ain't a pretty scenario by any means, but it's not the end of the world for people young enough to profit from it.

bob2356 says

Good luck with that. Very,very few boomers have enough retirement savings to live off the income. They will be selling stocks and bonds out of their IRA's to buy food, clothing, and pay the rent. Even the defined benefit programs will have a substantial net outflow for a long time once the wave hits. It's not possible to avoid, the big pension plans all are counting on 8%+ returns. Not going to happen.

There are SOME boomers in good shape, but you're right, the majority has little to nothing to draw upon other than their house. Some don't even have that because they've kept pulling money out of their home.

We live in interesting times. I got out, Bob.