Enough with the comparison charts already. The current stock market cycle has been compared to everything from the 1920’s, 70’s, 90’s, you name it. I will readily agree that, in all the comparisons, the price patterns are similar, however, correlation is not causation. What is ALWAYS left out of the conversation are the fundamental underpinnings that either supported or impeded those previous market cycles as compared to today.
Today, Business Insider produced the following chart and commentary by Jeff Saut:
In his new weekly Investment Strategy comment, Saut notes that these things work in both directions. Here’s Saut:
“Accordingly, the alleged pundits that called for a “crash†four weeks ago have, at least so far, also been proven wrong, which I discussed when dissecting their comparison chart to 1929 showing that when comparing apples-to-apples the correlation totally breaks down (see chart 1 and 2). In fact, as proof that you can make ratio charts do just about anything you want, take a look at chart 3 that suggests this secular bull market has another 300% to 400% left on the upside.”
There are two major issues with that statement. First, Business Insider extracted selected verbiage which makes it seem as though Jeff Saut is suggesting that the markets have 300-400% more upside to go. That is not exactly the case. Below is actually what Jeff Saut wrote:
“A few weeks ago it was the correlation to the 1929 stock market rally that led to the ’29 crash that made the rounds. I wrote about that, noting that the folks making said comparison were using ratio-adjusted charts, which can make the charts show just about anything you want them to. The same thing happened with Japan’s Nikkei Index in the early 1990s and that also proved to be wrong. Accordingly, the alleged pundits that called for a ‘crash’ four weeks ago have, at least so far, also been proven wrong, which I discussed when dissecting their comparison chart to 1929 showing that when comparing apples-to-apples the correlation totally breaks down. In fact, as proof that you can make ratio charts do just about anything you want, take a look at that suggests this secular bull market has another 300% to 400% left on the upside.”
The point Jeff was trying to make is that you can take any multiple of data series, and with the right manipulation, you can torture the data into saying whatever you want. As the old saying goes:
