Reading the Entrails

Back in November, the last time that DIJA was testing it’s pre-bubble (1997 & 2003)  lows, a lot of people were writing that 7k looked like a bottom for the average. Their rational is that if you draw a straight line on the chart that extends from the start of the bull market being in 1982 you end up at around 7k for now. This is a good example for the S&P.



Take a look at the two graphs above, but ignore anything after about the year 2000. Do they you remind you of anything?

Obviously what i’m suggesting is that those are exponential growth curves. The increases are a function of things like the rise in population, or money supply, or any other measure that you’d like to pick that has shown exponential growth since the madness of the Reagan years. Come up with an unsustainable system, be happy living in the now; let the future reap the misery sown.

My guess is that just like the situation with population dynamics, where numbers increase exponentially for a period of time, before hitting some kind of carrying capacity limit, and turning chaotic, the stock market averages are now essentially unpredictable. You see similar patterns in graphs of natural processes all the time… and after all, we’re just another natural process.

Quite what that means for the stock market i can’t really say… it just seems a little arbitrary to go around drawing straight lines on curves. 5k before 7k… overshoot? Hmm. We’re back to population dynamics.

Wise words...

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