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

To: lurqer who wrote (8737)	11/2/2002 9:37:31 PM
From: lurqer	Read Replies (1) \| Respond to of 89467

When Harry Met Folly In The Modern Era Message 18188077 I discussed the interplay between Harry Dent’s demographic Spending Wave and the Panic to Mania cycle exhibited in geocities.com In his books, Dent showed that the plunges to the ’32 and ’74 Dow panic lows corresponded closely to the falls in demographic spending of the Boomer’s parents and grandparents. He confidently predicted that the next panic fall would occur in 2007 when the spending would fall for the Boomers. Instead, the fall occurred in 2000. What happened? More careful scrutiny of Dent’s correlation reveals a problem with the ’74 plunge. Dent’s Spending Wave decline predicts a fall from ’72 to ’74. This corresponded well with the Dow price fall unadjusted for inflation exhibited in stockcharts.com It fails to predict the value fall from the Inflation-Adjusted Dow in 1966 that preceded the final ’72 to ’74 plunge. To correct for these discrepancies, various solutions have been proposed. Roger Babson takes the first derivative of the Spending Wave function to get his ROC (rate of change) function. He then correlates the ROC peaks and troughs with the start of secular bull and bear markets. It’s his contention that it’s not so much the absolute value of the spending as the change in spending that triggers the secular bull and bear periods. Mike Alexander uses a Wage-Adjusted Spending Wave gold-eagle.com He maintains that to get the real spending you must convolve the desired spending from the demographic Spending Wave with the wage rate change. In a period of rising wages, the spending will be enhanced, and in a period of stagnant wages, the spending will be depressed. Both of these approaches have merit and exhibit some success in matching the observed market profiles. While each of these techniques “could be right”, I believe the problem is more fundamental. It may be heuristically desirable to explain the market in terms of a single variable (demographics), but I don’t believe life, the economy or the market is that simple. Demographics is destiny – but only to a point. I think it’s folly to only consider demographics. During the two 18 year secular bull markets from ’48 to ’66 and ’82 to ’00, greed trounced fear. “Buying the Dips” always worked. The market continued to go up. Eventually human emotion trumped demographics as the controlling factor and greed becomes mania – then mania leads to panic. I believe that in a “normal” secular bull cycle, the mania peak will precede the Spending Wave peak simply because of the emotional component of the market price valuation. This was masked by the inflation rampant in the previous secular bear, but not in the current one. Moreover, I believe that exogenous events outlined in The Modern Era delayed the initiation of the secular bull of the Boomer’s grandparents. Hence, their mania did not have time to peak prior to their demographic spending peak. So, “distortions” in the two preceding cycles led Dent to erroneously predict a secular bull market peak seven years later than the one that occurred in ’00. Nevertheless, his Spending Wave is a powerful force and will IMO cushion the fall to the lower channel in the Inflation-Adjusted Dow graph until around 2008. All JMO. lurqer