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Debunking the Causality Between Pre-Great Depression and Now (Chart)

November 23, 2013 | About:


The market participants must be on the edge of their seats now given the market charting all time highs. Analysts tend to overanalyze rather than act in a rational manner.

So without further ado, let's debunk the myths: One, correlation does not always equal causation, but it does provide an insight into investors' sentiment/mirror its behavior over time. Two, my previous article had posited, however, that we may be transitioning into a secular bull market.

1) Dan Greenhaus of BTIG (@danBTIG) includes this chart in his latest nightly email. It shows the current market aligned with the market in the days before the Depression.

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2) Another analyst had tried to disprove Greenhaus' thesis by normalizing the chart. In Wilkinson's normalized chart below, he opined that today's rally is much tamer than the depression-era rally.

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Let's listen to David Tepper instead who has more skin in the game (staking his reputation and money on the line) by declaring we are not in a bubble.

And here's my personal take that the market has legs to run. The red line equals pre-Great Depression and the blue line equals May 2012 to the present day. Even if the market corrects it will rebound up again thereafter. With the Fed watching the markets that closely, it is doubtful that the market could dip by 40% or more without any intervention.

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About the author:

Hedgie
Agnostic trader. CAIA and CHP charterholder. Twitter: @hedgefundtrades

Visit Hedgie's Website


Rating: 2.5/5 (4 votes)

Comments

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Why would we expect to enter a bubble shortly after a major crisis? It's like a reckless driver experiencing a near death situation and then immediately going back to the same pre-crisis driving style if not worse.

With the 2008 crisis people's eyes have been opened as to so called unforeseen risk, and they will act accordingly even though the risk of a repeat has diminished. If there is a risk of bubble behaviour I'd say it will hit in a new area, not in housing, banking or any of the other areas hit hard during the last crisis.

In fact, the fear of a repeat occurrence may just lead to unnecessary pre-emptive or anticipatory selling of such past 'bubble' and or crisis equities.

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