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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: lurqer who wrote (8734)	11/2/2002 8:38:23 PM
From: orkrious	Read Replies (2) \| Respond to of 89467

WALL STREET'S GREATEST CRIME Blatant Ignorance of Market History gold-eagle.com

To: lurqer who wrote (8734)	11/2/2002 9:12:50 PM
From: lurqer	Read Replies (1) \| Respond to of 89467

Keeping Up With Inflation In a conversation this past week with LG on my posts regarding the Panic to Mania cycle exhibited in geocities.com LG commented that he thought that each cycle had its own distortion. I couldn’t agree more. In this post, I’ll discuss the effects of the massive inflation of the 1970s on the secular bear of that era. As expressed in Message 18188077 each demographic generational bulge will produce its own secular bull and bear markets based on its Spending Wave. In 1966, the Boomer’s parents had their mania peak with the GO-Go market. This was also the time of the large “build up” of the military associated with increased Vietnam involvement. Johnson’s “Guns and Butter” policy led to a significant increase in the inflation rate at the time. Scarred by the economic deprivation of the Great Depression and infused by Keynesian economic concepts, the Boomer’s parents were in control when the secular bear began in 1966 and throughout the Nixon years. The prevailing idea was to “fight” the slowing economic activity with huge increases in the money supply. The folly of this approach became apparent to all when the resulting inflation reached double digit proportions in the Carter years of the latter ‘70s. As discussed in the post From Panic to Mania, Message 18142540 a secular bear begins with a panic that carries the value of stocks from the upper channel line (1966) to the lower channel line (1974) on the inflation adjusted Dow graph exhibited above. Subsequent to the panic phase the market bounces and then oscillates sideways at a lower level until the Spending Wave of the next generational bulge kindles the beginning of the next secular bull. Although visible in the inflation adjusted Dow graph for the period from 1966 to 1982, the pattern is “distorted” by the drop in value after 1974 resulting from the sever inflation of that time. However, if one doesn’t adjust for inflation the “distortion” of the pattern is even greater. stockcharts.com From a purely price perspective, the entire secular bear market can be viewed as a sideways oscillation. But to borrow a phrase from the time, the market was not “keeping up with inflation”. To get a longer perspective on the effects of inflation consider dogsofthedow.com This shows that in the previous secular bear (the 1930s) without the massive monetary increases, deflation occurred - resulting in the inflation adjusted Dow graph being above the non-adjusted graph. The OPA encyclopedia.com held prices in check during WWII. Upon its demise in 1947 (corresponding to the vertical line on the graph), inflation spiked, and the non-adjusted line has remained above the adjusted line ever since. These graphs exhibit the perils of either doing nothing, or simplistically addressing the contracting economy that accompanies a secular bear market. Hopefully, our “leaders” in Washington will learn from past mistakes – but I wouldn’t bet on it. JMO lurqer