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Hi Bruce,
I have to agree with the logic evident in your posts below, IF the
underlying assumptions on which they're based are strong enough to support
them. I'm not here to argue against them, but it makes me wonder if the
points you make have made classical technical analysis a thing of the past.
I'm not trying to be cute here - and what about an offshoot of that
discipline, the Elliott Wave Principle (I can hear the groans now)? I make
no claim to being expert in its application, but its very foundation is that
price patterns develop in certain ways as a result of emotion (human nature)
which doesn't seem to be different from any other time in history, as far as
I can tell. All of that is independent of whatever fundamentals or
rationalizations are listed for a correction of any magnitude; but let's
examine one of the guidelines (not a rule) of Elliott as pertains to
retracements.
Generally, an Elliottician would look for a retracement to end somewhere
within the span of the previous fourth wave of one lesser degree; if the
next major top in the stock market is of Grand Supercycle degree, where does
the correction end? For the sake of this discussion, I'll assume that
Frost's and Prechter's labeling is correct (another assumption that may be
debatable) and that the price range of Supercycle wave four was between 40
and 380, approximately. Again, I'm not arguing that such a decline is
likely. But based on the arguments you've presented, it would seem to me
that there would have to be some sort of colossal event to cause such a
decline - if that's the case, then the very basis of the wave principle is
destroyed. According to Prechter, market action PRECEDES the major events
that people would believe actually caused such a crash to occur. I have a
hard time grasping what would seem to be backward thinking (even though I'm
guilty of it myself at times), so all I really want to know is this: am I
wasting my freakin' time studying Elliott because regulation and changed
market/social conditions have stifled it's application, or is it just a
matter of time before it's proven correct? Or, is Prechter's labeling wrong
and is he insane after years of screaming "Bear!"?
I suppose I could think of more, but my arms are going numb and the nurse
says it's time for my medicine. I was very ill, but
I'm feeling MUCH better now,
Dennis C.
dconn@xxxxxxxxx
-----Original Message-----
From: bruceb@xxxxxxxxxxxxx <bruceb@xxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Tuesday, July 14, 1998 7:49 PM
Subject: RE: MKT - DOW, and the next ten years
>
>To put it bluntly, the US stock market is going to continue going up for at
>least the next ten years. There will obviously be some noticable dips
along
>the way, such as last October, but the bull market will continue. Do I
have
>a crystal ball, or "ultimate knowledge"? No, but I do understand the
forces
>of supply and demand. The laws of supply and demand ALWAYS work in the
long
>run. Always have, always will.
>
>Below is a copy of three messages I posted to the Omega List a few months
>ago about why the market will continue to rise. The first was a response
to
>three gentlemen who had posted very bearish messages about the market. The
>second and third posts were responses to messages I received from two list
>members about my opinion. This is a fairly long thread, so if you're not
>interested, hit your delete key now...
>
>
>>>
>
>Jim, Gerrit, and Tom, I think you better take a look at the other side of
>the coin. If you want to know why the market has kept going up and will
>continue to do so, you can start with the most basic principle of
economics-
>supply and demand.
>
>The supply in this case is the amount of shares of stock available to the
>public to be purchased. Despite all the IPOs you hear about on a daily
>basis, the amount of shares available in US stock markets has only
>marginally increased over the past ten years. Why? Because while some
>companies have been selling shares, many others have been buying their own
>shares back (or eliminating shares because of mergers). GM recently
>announced it was buying back 5 billion dollars worth of shares. That's 5
>billion dollars that will now go chasing other shares of stock that are
>still available. That one buyback alone will more than offset all the
Yahoo
>and Excite IPOs of this world.
>
>The demand side of the equation is a little more interesting. Many people
>like to compare this market to the one just before the 1929 crash, but
>they're overlooking one very important point. Back then, investors were
>only required to put down as little as 10% of the face value of the stock
in
>order to buy it. I don't know what the exact figure was, but I do know
that
>just before the crash an enormous amount of that market value was built on
>"paper" profits that investors just kept "pyramiding" back into the market.
>People truly were speculating with money they didn't have. That simply
>isn't the case today.
>
>The vast majority of stock now owned in this country was purchased with
>"real" money, not paper profits. I again don't know what the exact figures
>are, but I do know that the dollar value of outstanding shares that were
>bought on margin as a percentage of the whole market is not only low, but
>has actually DECREASED over the past few years. Who was it that panicked
>last October and sold during the Asian crisis? It was primarily hedge
>funds, who did have highly leveraged positions. Individual investors
>actually BOUGHT during the sell-off.
>
>This raises an interesting question- where exactly is all this "real" money
>coming from? The answer: the baby boom generation. The BB generation has
>just begun to enter the phase of their professional careers where their
>earnings are greatest. These earnings, combined with the fact that their
>children are now out on their own and their parents are covered by
>government programs, means these boomers have LARGE amounts of disposable
>income. In other words, they are not only in their peak earning years,
>they're also in their peak SPENDING and SAVINGS years. Their savings
>directly fuel the market by increasing demand and therefore the price of
>stocks, and their spending indirectly fuels the market by keeping the
>economy humming (just look at the sales of RVs!).
>
>Anyone who doubts the effect the BB generation is having on the stock
market
>should draw a line chart of the number of births per year in this country
>starting in 1940, and shift those numbers forward about 46 years. Thus,
the
>number of people born in 1950 would appear on the chart above the year
1996.
>On top of this draw a line of what the inflation-adjusted S&P 500 has done
>over the last 50 years and guess what you find? That's right, they're
>absolutely identical.
>There are plenty of bumps along the way, but they both slowly inch their
way
>upward and then begin to take off almost exponentially in lockstep. A
>picture of this chart appeared in TASC about a year ago.
>
>Of course, a cynic will say "this huge pool of savings may exist and
>continue to grow, but who says people will continue to buy US stocks with
>it?" My answer would simply be "where else are they going to put the
>money?" People could suddenly decide to buy a lot more bonds, but we all
>know there's a direct relationship between stock prices and bond yields.
If
>bond yields get cut in half because of a massive influx of money, what do
>you think will happen to housing and auto sales? What will then happen to
>the stocks in the auto, housing, steel, rubber, lumber, plastic, glass, and
>copper industries. You get the picture. I guess a lot of people could
>suddenly decide to invest overseas, but I think the recent Asian meltdown
>has removed that temptation for the next ten years or so. When you invest
>overseas, you're not only betting on a foreign market, you're betting on a
>foreign currency.
>
>This is why all the talk about the stock market being "overvalued" is, with
>all due respect, meaningless. Overvalued compared to what? The past?
That
>kind of thinking doesn't take into account the massive growth in the pool
of
>savings over the past 15 years. You're comparing apples to oranges. As
>long as large amounts of savings continue to be generated, people need to
>put the money somewhere. It doesn't matter if the average dividend falls
to
>.001% (that's still a better return than what you get if you stick the
money
>under a mattress), people are still going pump their savings into the stock
>market.
>
>Just out of curiosity, how many of you out there that think the market is
>overvalued are currently writing OEX call options long term? Not too many,
>I bet.
>
>By the way, in case you're wondering where the baby boomer / S&P chart says
>the stock market will end its hyper-up move and begin to fall... around
the
>year 2007.
>
><<
>
>>>
>
>>a very nice piece of work. I like to see the big picture instead of
>>trying to determine tomorrows move.
>>IŽld really like to see this chart, so if someone could post it please.
>>Thanks.
>>
>>Since I missed my chance from Ž82 till today, whats the chart telling
>>you about 2007 - 2017?
>>
>>Ulrich
>>
>
>
>Ulrich, its been a long time since I saw the chart, so the numbers I'm
>giving you are off the top of my head, so don't hold me to them (but you do
>have ten years to get the right ones!). Around 2007-2010, the graphs says
>the stock market should turn downward fairly steeply, but not as steep as
>the current up move. It should go down for about ten years, and drop about
>30-40%. Again, check the chart to get the accurate figures.
>
>The reason for this is pretty simple. Retirees are selling stocks everyday
>to pay their costs of living, it's just that we have a lot more people
>pouring money into the market right now for retirement than are taking it
>out. Around 2007, the ratio begins to change. A significantly larger
>number of people will be taking money out rather than putting it in.
>
>I should point out two things. First of all, I have heard some so-called
>experts say that the positive baby boom effect will continue until about
>2015. I never heard why they had a further date, but I would assume it has
>something to do with the fact that the historically uniform retirement age
>of 65 is rapidly disappearing. If enough boomers put off retirement and
>continue to work, that obviously delays the negative impact they will
>eventually have on the market.
>
>Second, as an eternal optimist, I'd like to think any number of things
could
>happen between now and then to offset the boomer's drain on the market.
The
>one I'm most hopeful for is the privatization of the social security
system.
>If this were to happen, the additional money poured into stocks through
>investor's SS accounts would more than offset the selling of stocks by
>seniors in the next millenium, and keep the bull run going.
>
>I know this isn't a public policy email list, but every reader of this list
>should heavily, heavily encourage their congressmen to support privatizing
>the SS system. Just remind them this will not only help us young people
now
>saving for retirement, but will help the boomers by providing buyers for
>those very stocks they will be selling. If more buyers aren't created, the
>boomers aren't going to get nearly as much for their stock portfolios as
>they were counting on for their retirement, and they won't be too happy
with
>their elected officials... (it never hurts to scare politicians a little
>bit).
>
>>>
>
><<
>
>
>Gerrit wrote:
>
>Bruce,
>
>
>...There have always been times when some things were very scarce and
>plenty of potential buyers were around. There was even a time when
>there was a major shortage of tulips.
>
>...And why should baby-boomers invest in a falling market if the market
>should ever fall ? They can happily keep their money in tripple AAA
>investments. Inflation is low - they even make money. They don't need to
>invest in stocks - it is just fashionable
>to do so.
>
>
>
>Gerrit,
>
>The problem I have with you bears is that none of you can give me a
>satisfactory answer to a simple question: What exactly are investors
>supposed to do with the enormous amounts of savings they are currently
>generating through their employment? The money in the stock market is not
>"paper" money. It's real, hard earned money that has to go somewhere. The
>Tulip panic in Holland in the 1500's was another speculative bubble built
on
>pyramided paper profits, not real money. Even if people did start selling
>stocks en masse and prices fell substantially, they would still have a lot
>of cash on their hands at the end of the day. What are they supposed to do
>with it? Buy art? Gerrit, you and I both know there isn't enough
>investment-grade art in the entire world to absorb a fraction of a fraction
>of the amount of money currently in the stock market, and it isn't exactly
a
>liquid investment.
>
>I threw at you the economic concept of supply and demand as the reason for
>the bull market, let me try another one- opportunity cost. In terms of
>investing, the opportunity cost of any investment decision is what you
could
>have earned had you invested in something else. Even though I would agree
>that most stock buyers have never even heard of the term opportunity cost,
I
>honestly believe more and more of them are catching on to the effect this
>principle has on their investment returns. That is, they are accepting the
>fact that more people have LOST money by being OUT of the stock market than
>by being IN it.
>
>Gerrit, if you had your money in a bank CD last year because you thought
the
>stock market was overvalued, you didn't earn 3%, you actually lost 27%
>because you could have earned 30% in the stock market. I obviously realize
>you can take the opportunity cost argument to extremes. Somebody could say
>I lost 70% last year because I had my money in the market as a whole and
not
>in DELL exclusively (I'm using ballpark figures here).
>
>However, if you just look at the generally accepted benchmarks of
investing-
>the S&P 500, 30yr Treasury Bonds, cash and CD's, and maybe gold, I honestly
>believe that the average investor is catching on to the fact that being out
>of the stock market and in other investments is, over the long run, costing
>them money.
>
>Bears love to talk about the market crash of '87, but just how bad was it
>really? Investors who bought stocks on Jan 1, 1997 and didn't panic and
>sell, actually FINISHED UP for the year! Even the poor souls who invested
>every penny they had the day before the crash got all their money back
>within a couple of years, and within about four years they were well ahead
>of their cash and bond holder counterparts. Was investing all their money
>in the stock market the day before the crash really that bad of a decision?
>
>People aren't buying stocks because it's "fashionable," they're buying them
>because it's the rational, intelligent decision when the long term track
>records of all their possible investment vehicles are looked at. They have
>accepted the fact that trying to "time" the market in the long run ends up
>"costing" them more money than it saves them. That's why they didn't sell
>last October, they BOUGHT. And of course, the baby boomer effect will
>continue to give them the money to do so.
>
><<
>
>
>Bruce
>
>
>
>
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