If you look hard enough, you will always find correlation between stuff.
Never forget that's correlation doesn't imply causality!
Scary 1929 market chart gains traction
21–30 of 42 posts
Re: Scary 1929 market chart gains traction
#22This sort of scare tactic means nothing without an effort to explain the correlation. Without a testable theory, it's meaningless data mining. My guess is someone on the inside has already shorted the market just before press time, anticipating the effect the article will have among unsophisticated investors. And guess what, boys and girls? That kind of "insider trading" is legal -- you can say anything you want in t…
Shorting the S&P500 in the hopes that a MarketWatch article will have a significant effect on the price despite the $14T market cap and high liquidity would be an absurdly risky and low-return way to make money. That's why people who run these sorts of scams focus on penny stocks with low market caps, relatively unsophisticated investors, and low liquidity.
Not that I disagree that the article is meaningless data mining--I just think stupidity is a better explanation than conspiracy.
Edit: I should have used the DJIA instead of the S&P500, since that's what's referenced in the article, but the same points hold.
Re: Scary 1929 market chart gains traction
#23If you look hard enough in a large enough data-set you will eventually find a correlation. It is just like the experiment where a dead fish placed in an MRI machine was asked to identify the emotional state of a person in a picture. Guess what happened.
http://blogs.discovermagazine.com/neuroskeptic/2009/09/16/fm...
Re: Scary 1929 market chart gains traction
#24This is very similar to the shape of the google trends graph of "fettucini".
Re: Scary 1929 market chart gains traction
#25Folks smarter than me: is it prudent to move my assets into cash for a couple of months? Is there really anything to this?
The basic strategy that I've always seen outlined: put a bit each month into an index fund. If the market tanks, that means you are buying low!
This is exactly the correct strategy.
Re: Scary 1929 market chart gains traction
#26FYI, with charts like this it's kind of important to do some quantitative work, not just take a look. Check out this taxonomy of charts: http://blogs.cfainstitute.org/investor/2013/05/15/an-r-squar...
Apparently as of a couple weeks ago the R-squared value was ~90%. http://www.marketwatch.com/story/ghost-of-1929-haunts-as-199...
I would want to see what happens to r2 when you drag the 1929 data across the last 80 years of the DJIA or whatever other index you want before I get excited about a 0.9 result.
Re: Scary 1929 market chart gains traction
#27Folks smarter than me: is it prudent to move my assets into cash for a couple of months? Is there really anything to this?
I've been a doomsayer ever since the 2008 crisis (crises) exposed certain systemic flaws in finance and investing, and I've also been wrong while everyone else fed at the QE trough and did just fine.
While I don't believe that QE regimes and cooked statistics will necessarily end well, I also don't believe this chart proves anything. If you do, however, look into ultra-shorts like SDS and DXD, and if you happen to be correct, you can profit handsomely from such an elevator-shaft drop.
Re: Scary 1929 market chart gains traction
#28Earlier quoted context omitted.
Warren Buffet has only a few basic rules. Amongst them is only invest in things you understand. I think as a general rule, its a pretty good one.
Unfortunately, I don't understand much. So, I just invest in S&P500.
By doing so, you'll beat the post-fee, ex ante performance of actively managed mutual funds[0]. You're doing exactly the right thing--investing in broad-based indices rather than trying to beat the market. As your time horizons get shorter, you can move some money to bonds (treasuries, bond ETFs, etc.) to decrease your risk (and reward).
[0] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021
Re: Scary 1929 market chart gains traction
#29I am not particularly a gold bug or even a fan of this site, but I have found this chart interesting for a long time:
http://pricedingold.com/charts/DJIA-1900.pdf
The pattern is fairly well established at this point. I am not sure exactly what it means and I'm not sure the obvious interpretations that most people would have are correct, but it definitely argues for some sort of pulsing macro business cycle.
My own hypothesis is that gold's value vs. paper/stocks is a decent indicator of "fear" -- people flock to commodities like gold, silver, and real estate, as well as to bonds, etc. when they don't believe the market is sound. Thus gold's value rises during these times relative to paper currency, which depresses the value of the stock market when priced in gold. During times of hope/exuberance, the opposite occurs. People flee static investments for dynamic ones. Who wants to own a lump of metal when the markets are hot?
There hasn't been a really big macroeconomic "growth story" since 1999, thus this graph.
If the pattern continues, this graph argues the same thing. Given that this is a repeating and established pattern, it's a much stronger argument than the correlation in the original article up top. It argues that we have not yet "hit bottom" in the current macro cycle and that one more crash of some sort lies in the near future before the economy resets itself for the next growth cycle.
(Argues, but does not prove, of course.)
Re: Scary 1929 market chart gains traction
#30I am not particularly a gold bug or even a fan of this site, but I have found this chart interesting for a long time: http://pricedingold.com/charts/DJIA-1900.pdf The pattern is fairly well established at this point. I am not sure exactly what it means and I'm not sure the obvious interpretations that most people would have are correct, but it definitely argues for some sort of pulsing macro business cycle. My own hy…
> but it definitely argues for some sort of pulsing macro business cycle.
Not really. Without an explanation, it's three bumps having no significance. If you watched a sequence of coin toss outcomes, some heads, some tails, and called the heads outcomes "market surges", you would see the same kind of pattern, but without any real meaning.
Remember that to a scientist, the default assumption is not that an observed pattern has significance, but that it doesn't -- it's called the "null hypothesis".
There's a world of difference between describing a pattern, and explaining a pattern.
More here: http://arachnoid.com/randomness