
Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog - ry4n413
https://thefelderreport.com/2018/07/25/why-it-might-be-a-good-time-to-revisit-ray-dalios-1937-analog/
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pembrook
The Dalio points might be relevant but overlaying a chart on top of another
and drawing analogues based purely on aesthetics is bad finance. There's a
reason hedge funds aren't pitching clients on technical analysis based
trading...it's because technical analysis is the astrology of the investment
world.

Also, everybody seems to be scared about the yield curve, but the problem with
using an inverted yield curve as an indicator is that...while it may be a good
_recession_ indicator, _recessions are a bad indicator for market
performance._

Capital Minded ([http://capitalminded.com](http://capitalminded.com)) did an
interesting chart in one of their recent briefings that showed stock market
performance through the last 9 recessions. I'll try and dig it up and edit
this comment.

But essentially half of the time, the market is _net positive_ by a lot during
recessions.

Hence why market timing is a fool's errand.

~~~
melling
Didn’t Paul Tudor Jones overlay charts to predict the 87 Crash?

Saw something like this in the Trader documentary:

[https://www.reddit.com/r/Documentaries/comments/4cke1z/trade...](https://www.reddit.com/r/Documentaries/comments/4cke1z/trader_the_documentary_1987_rare_documentary/)

~~~
pembrook
I've seen that used to sell a lot of cheesy "online trading school" e-courses
but I can't speak to whether that was what ultimately drove him to make the
trade.

This article seems to suggest Jones got the idea from a guy named Robert R.
Prechter using Elliot Wave Theory:
[https://www.nytimes.com/2007/10/13/business/13speculate.html](https://www.nytimes.com/2007/10/13/business/13speculate.html)

Prechter called the '87 crash using wave theory, but he also called for "the
end of the great bull market" in 1995. Which was 5 years too early (ie. flat
out wrong).

The lesson here is there's always somebody calling for the next collapse. When
it inevitably happens each time, there's always a fresh stock of people you
can point to who "called it." Whether this is genuine smarts or just random
probability, is questionable.

~~~
perl4ever
"Prechter called the '87 crash using wave theory, but he also called for "the
end of the great bull market" in 1995. Which was 5 years too early (ie. flat
out wrong)."

He was in good company though - Greenspan's comment about "irrational
exuberance" was in 1996, when the Nasdaq was around 1300 compared to its peak
over 5000.

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darawk
> The correlation between the S&P 500 over the past four years (black and
> white candles in the chart below) and the four years leading up to the 1937
> top (blue candles) is roughly 94%.

Please tell me you didn't just correlate two price series :/

~~~
curiousgal
Why is that a bad thing?

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darawk
Prices aren't stationary, which means (essentially) that they move around and
compound on themselves. Correlation assumes that the two time series being
correlated are stationary. If you want to correlate two price series, you do
so using returns (e.g. +1%, -2%, ...), which are a stationary series. If you
run a correlation on price series, you'll get silly high values like 94%.

~~~
eigenvalue
I'd go further and suggest using changes in the logs of the price over time.

~~~
darawk
My understanding is that using the first difference of the log is just an
approximation of % change that is in common usage primarily because it was
computationally faster and because it's closed form is smooth. I could be
wrong though. Is there some advantage to doing that that i'm unaware of?

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merlincorey
This article predicts a coming crash of markets, essentially.

It attempts to make some parallels to history and show similar graphs from the
past and today.

Of course, if this information were truly accurate, they wouldn't tell anyone
and they'd just start shorting all the things...

~~~
cbayram
Shorting and then telling the herd is exactly what’s done. Once you take the
short position, you want to scream at the top of your lungs and bring about
that catalyst/trigger asap. Spread rumors, write hit pieces, etc... Observe
the half-baked hit pieces on TSLA by Chanos and co.

When right, these people will dampen the bubbles and falls preventing
catastrophe of greater magnitudes.

~~~
ethn
Chanos kept his short on TSLA secret for 3.5 years.

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Animats
No, not 1937. Very different situation. The US was slowly coming out of the
Great Depression with massive Federal spending and jobs programs. Union
membership had doubled in the previous five years. Complete opposite to today.

~~~
tcbawo
We might be looking at a similar situation to the 1930s again, but with the
USA closer to 1930s Europe and China closer to 1930s USA. China has had a
recent speculative stock bubble. Also, the Smoot-Hawley Tariffs took effect in
1930 (we're just threatening trade war now).

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ethn
Ray Dalio said the same thing in 1982, pushing him near bankruptcy to the
point where he was forced to let go of all his employees—there's no doubt he
learned since then but keep in mind he also made the same error in 2011.

[https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-
nea...](https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nearly-shut-
bridgewater-hedge-fund.html)

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imnotlost
That broken clock may never be right, he's been saying the same thing since
2011:

[https://twitter.com/EconomPic/status/1022191087589314561](https://twitter.com/EconomPic/status/1022191087589314561)

~~~
AnimalMuppet
A broken clock is right twice a day, but a running-but-off clock can be wrong
forever ;-)

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fake-name
Jesus, why does their garbage jerberscript break ctrl+click?

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patricklovesoj
With current tax cuts, I can see a delay in down turn compared to what
happened before

~~~
ry4n413
what was interesting was trump's comment the other day regarding paying down
the debt using the gained taxes in gdp growth. I haven't done the math myself,
but it's an interesting scenario to thing through if it's possible because I
don't think it's one that many people are thinking about.

