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Generational Dynamics World View
(04-06-2018, 02:22 PM)Mikebert Wrote: > Question for John X. Back in 2003-4 you forecast a Dow of 4000 or
> less by the end of 2004. I argued that the market likely had
> already bottomed in 2002 at 7286 on the Dow and was buyable
> (https://safehaven.com/article/84/how-low...ave-to-say). The
> concept on which your prediction was based as historical
> mean-reversion to a single digit P/E according to the Shiller
> method (now called CAPE)

> Here is a chart of CAPE values ( http://www.multpl.com/shiller-pe/
> ). CAPE got to 15 on the 2008 financial crisis, and is now 31. In
> our discussions, I said you were right that CAPE would return to
> single digit values, but it would be around 2020. I am now where
> you were in 2003-2004 making a ridiculously bearish forecast that
> the Dow is going to go to 8000 or so. Sad

> Do you still follow the market, or have you given up?


Well, in 2004 you said that I've set things up so that I could never
be wrong, since if a financial crisis didn't occur, then I could
always say that it was still coming. I responded that as long as
public debt keeps increasingly exponentially, then the financial
crisis was coming, but if public debt starts to fall to normal levels,
then you could definitely say that I'm wrong when that happens. I
added that such reductions in public debt could never happen.

The Generational Dynamics methodology produces analyses and trend
predictions that have been 100% correct, but the problem is that the
timing of the endpoint of the trend cannot be predicted. The analogy
I sometimes use is the phrase "the straw that breaks the camel's
back." If you keep piling straw onto the camel's back, then you can
predict, with 100% accuracy, that there will be a straw that breaks
the camel's back, though you can't predict which straw, or when it
will occur.

But the generational predictions are more complex than simply saying
"if you keep piling straw, the camel's back will break." The
generational prediction also says: "You will keep piling straw on the
camel's back." This is a very strong prediction, because it says that
the trend will continue, and that the predicted endpoint (breaking the
camel's back) will be reached with 100% certainty, because you can't
do anything to stop it. To emphasize this, the prediction is that
you'll keep piling straw on the camel's back until you break the
camel's back. In a generational sense, you have no choice. You
cannot stop piling on straw. Therefore you will break the camel's
back with certainty.

So my 2004 prediction was not just that a global financial crisis
would occur, and that P/E ratios would fall to single digits. It was
also that the trends leading to those endpoints would continue,
even if I couldn't predict when the endpoints would occur.

It's true that I expected those endpoints to be reached in the 2007-8
timeframe, but I watched in utter astonishment as the Fed and other
central banks flooded the world's financial system with tens of
trillions of dollars in printed money. And then hedge funds have
leveraged that money into hundreds of trillions or even quadrillions
of dollars of money with nothing to back it. That isn't "public
debt" in the sense that I meant it in 2004, but it's certainly
in the same spirit and of the same kind that I was thinking
about.

So not only have I not "given up," but I consider my 2004 prediction
still to be 100% correct. If I included in my 2004 prediction
something about timing (something that I was still sometimes sloppy
about in those days), then I shouldn't have done that, because those
kinds of timing predictions cannot be made in the Generational
Dynamics methodology. But the trend prediction was correct, the
prediction that public debt would keep increasing was correct, and
that therefore it will end up in a financial panic and crash is still
correct.

However, if you have a methodology that in 2004 came up with a 2020
date for the P/E ratio to fall to single digits, then I'll have to
admit that you've certainly been extremely accurate with the timing,
and I congratulate you on that.

In my World View columns, I only write about financial issues when I
have something new to add. For example, I could write today that "The
S&P 500 P/E ratio is 25.04, as of Friday morning. This is
astronomically higher than the historical average of 14, indicating
that the stock market is in a huge bubble, and is headed for a major
financial crisis." But I've written things like that several times in
the past, and there's no point in just repeating it.

I haven't updated my own P/E ratio chart since August 2015:

[Image: dppr1-150826.gif]

As this shows, the P/E ratio has been far above the historical average
since 1990, and so by the Law of Mean Reversion it will fall well
below the average. And because it's been so far above the average for
so long, it will probably fall well below the historic lows of 5-6,
and stay there for a long time, in order to restore the historical
average to 14.

Since you're really into analyzing timings, you may be interested in
what Higgenbotham has been posting in the Financial Topics thread of
the Generational Dynamics forum for several years.

Higgenbotham has been shorting the market for years, using various
charting techniques to predict when the crash will occur. He's lost
money at various times and made money at others. I keep telling him
that amazed I am at what he does and how he must have a stomach made
of steel to do it, since I sometimes feel sick to my stomach just
reading what he's doing.

At any rate, he seems to have made about $500 in a few hours
overnight on Thursday.

http://gdxforum.com/forum/viewtopic.php?...780#p38865

I look upon this with total awe. If I even tried anything like this,
I'd end up in the hospital with total nervous breakdown.

So I don't know if you're in the market yourself, or if you're a
short-seller, but if you have any insights into market timing,
Higgenbotham would probably be interested in hearing them.

By the way, I've also been posting my own speculation recently.

The market has peaked on January 26 of this year, and since then has
been following the same kind of wild swings as when the
market peaked on September 3, 1929.

** DJIA Historical Page
** http://www.generationaldynamics.com/pg/w...i.djia.htm


The earnings period is going to start in earnest this week. The
expectations are an astronomical earnings increase. If those
astronomical expectations are not met, that could be the trigger for a
panic and a crash.

One theory is that the October 28, 1929, panic occurred because
earnings were below expectations.

If we want to guess at when there might be a panic this year, it would
be just as far into the earnings period, so it would be on April 28,
2018. If we follow the 1929 pattern, then there would be a massive
panic, followed by a rapid near recovery. After that, the market
would keep falling, and reach bottom somewhere around 2020, which is
what you predicted in 2004.

However, it would fall far below 8000. Probably around 1000.

Anyway, I post these kinds of semi-wild speculations in the forum, but
I rarely include them in my World View articles.
Reply


Messages In This Thread
RE: Generational Dynamics World View - by radind - 05-14-2016, 03:21 PM
RE: Generational Dynamics World View - by radind - 05-23-2016, 10:31 PM
RE: Generational Dynamics World View - by radind - 08-11-2016, 08:59 PM
RE: Generational Dynamics World View - by SomeGuy - 01-18-2017, 09:23 PM
RE: Generational Dynamics World View - by tg63 - 02-04-2017, 10:08 AM
RE: Generational Dynamics World View - by Galen - 03-13-2017, 03:33 PM
RE: Generational Dynamics World View - by SomeGuy - 03-15-2017, 02:56 PM
RE: Generational Dynamics World View - by SomeGuy - 03-15-2017, 03:13 PM
RE: Generational Dynamics World View - by Galen - 05-30-2017, 01:04 AM
RE: Generational Dynamics World View - by Galen - 07-08-2017, 01:34 AM
RE: Generational Dynamics World View - by tg63 - 08-09-2017, 11:07 AM
RE: Generational Dynamics World View - by tg63 - 08-10-2017, 02:38 PM
RE: Generational Dynamics World View - by Galen - 10-25-2017, 03:07 PM
RE: Generational Dynamics World View - by rds - 10-31-2017, 03:35 PM
RE: Generational Dynamics World View - by rds - 10-31-2017, 06:33 PM
RE: Generational Dynamics World View - by noway2 - 11-20-2017, 04:31 PM
RE: Generational Dynamics World View - by Galen - 12-28-2017, 11:00 PM
RE: Generational Dynamics World View - by Galen - 12-31-2017, 11:14 PM
RE: Generational Dynamics World View - by John J. Xenakis - 04-07-2018, 10:18 AM
RE: Generational Dynamics World View - by JDG 66 - 06-22-2018, 02:54 PM
RE: Generational Dynamics World View - by JDG 66 - 07-11-2018, 01:42 PM
RE: Generational Dynamics World View - by JDG 66 - 07-11-2018, 01:54 PM
RE: Generational Dynamics World View - by JDG 66 - 07-19-2018, 12:43 PM
RE: Generational Dynamics World View - by JDG 66 - 07-25-2018, 02:18 PM
RE: Generational Dynamics World View - by JDG 66 - 07-11-2018, 01:58 PM
RE: Generational Dynamics World View - by Galen - 08-18-2018, 03:42 AM
RE: Generational Dynamics World View - by Galen - 08-19-2018, 04:39 AM
RE: Generational Dynamics World View - by tg63 - 09-25-2019, 11:12 AM
RE: Generational Dynamics World View - by JDG 66 - 03-09-2020, 02:11 PM
RE: Generational Dynamics World View - by Camz - 03-10-2020, 10:10 AM
RE: Generational Dynamics World View - by tg63 - 03-12-2020, 11:11 AM
RE: Generational Dynamics World View - by JDG 66 - 03-16-2020, 03:21 PM
RE: 58 year rule - by Tim Randal Walker - 04-01-2020, 11:17 AM
RE: 58 year rule - by John J. Xenakis - 04-02-2020, 12:25 PM
RE: Generational Dynamics World View - by Isoko - 05-04-2020, 02:51 PM
RE: Generational Dynamics World View - by tg63 - 01-04-2021, 12:13 PM
RE: Generational Dynamics World View - by CH86 - 01-05-2021, 11:17 PM
RE: Generational Dynamics World View - by mamabug - 01-10-2021, 06:16 PM
RE: Generational Dynamics World View - by mamabug - 01-11-2021, 09:06 PM
RE: Generational Dynamics World View - by mamabug - 01-12-2021, 02:53 AM
RE: Generational Dynamics World View - by mamabug - 01-13-2021, 03:58 PM
RE: Generational Dynamics World View - by mamabug - 01-13-2021, 04:16 PM
RE: Generational Dynamics World View - by mamabug - 01-15-2021, 03:36 PM
RE: Generational Dynamics World View - by galaxy - 08-19-2021, 03:03 AM
RE: Generational Dynamics World View - by galaxy - 08-21-2021, 01:41 PM
RE: Generational Dynamics World View - by galaxy - 02-27-2022, 06:06 PM
RE: Generational Dynamics World View - by galaxy - 02-27-2022, 10:42 PM
RE: Generational Dynamics World View - by galaxy - 02-28-2022, 12:26 AM
RE: Generational Dynamics World View - by galaxy - 02-28-2022, 04:08 PM

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