Aug

25

I was cleaning this weekend and came across a 2004 article from the chair in Active Trader on survival stats. It seems appropriated given the equity market decline. Separately, it looks a little like 1998 and the "Asian Contagion." Separately, in thinking about the Chinese market giving up all its YTD gains, that is consistent with 1929 and 1987 but the next day there is a really big rally.

Using the Dow Jones Index, if today's YTD change is less than zero then buy tomorrow, it has 84% odds of being a winner. Bear markets generally start down and go down more. Winners tend to bounce back from bad beats while bearish (loosing years) just fold up and come back and try again next year.

Separately, here is a link to my white paper on surviving this financial no man's land at the zero bound. Momentum breaks are signs of switches.

"Surviving Financial No-Man's Land Surviving Financial No-Man's Land: Broken Models & Interest Rates at Ground Zero"

A White Paper by: Allen R. Gillespie, CFA


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  1. Craig Bowles on September 5, 2015 8:06 pm

    1987, 1998, and 2004 bounced back so quickly, because the economic setups were not as messed up as as 1989-90, 2000 and early 2001, 2007-08 and even early 2009 were we had recessions on the way. When the lagging index is stronger than the coincident index, we normally have a recession to fix it.

    The lagging index is currently the strongest index and the leading index peaked in June, so the coincident index would normally peak 4-6 months later or Q4 in this case. The global economies being so linked suggests a global recession which is longer. You normally wouldn’t even think about buying stocks until the lagging index starts showing negative growth rates.

    Maybe the Fed can keep the economic setup inverted for longer than normal but the lagging index has mostly outpaced the coincident since April 2011. This is longer than 2005-2009.

    Geoffrey Moore used to used the inflation lag to predict recession duration and we could probably see something similar from the duration of inversion. Maybe not duration but severity. The Fed doesn’t seem to care about the future consequences of their actions. Ms. Yellen even said that she doesn’t know anything about the composite indexes. If she did, the Fed might be more apt to tighten before the lagging index shows positive growth rates. She certainly wouldn’t tighten now.

    I never hear economists talk about elasticity anymore. The US used to have so many different industries and such different regions that one area would benefit when another area was failing. The economy attempted to correct this in 2008 but we forced money back into the banks and car companies instead of letting it diversify. It’s depressing to even think about.

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