Weekend April 6, 2014
I have been looking at some very long term charts. These go back to the time that I re entered the brokerage business. It is said that we all live through history without realizing we are doing so. This has certainly been true of the last two centuries. Consider these observations.
In 1800, transportation was little changed from the time of Columbus. Sure the wooden ships were larger and it was possible to book passage across the Atlantic but it had to have been a tough multi-month journey in a leaking ship hoping you would catch some fish to eat each day.
And then the steam engine was improved about 1810. It had application for the railroad, land, and for marine applications, oceans. Sail was its golden age with the Clipper Chips. The 'age' bloomed from 1843, to the end of the US Civil War and opening of the Suez Canal in 1869. Americans could travel the country and literally the world by 1875, something that was impossible just three generations earlier. Imagine the luxury of a Missippi Steamboat versus simply floating on a raft sixty years before.
Discovery of oil in the 1850s literally fueled this transportation revolution. And that would lead to kerosene replacing candles. In the next forty years the world would be transformed again moving from candles to kerosene to gas lights to electric lights and trolley cars. What a revolution.
The horseless carriage would replace the horse and then Americans could travel the country on their own, asphalt roads developed over the next few decades made this a reality.
The real development that escapes our attention was that this high tech revolution led to a division of labor which finally brought forth a true wonder, leisure time and money to invest. The development of newsprint in the 1850s led to newspapers. By the 1880-1890s, there were thousands of stock tickers in the North East.
THe combination of newspapers and stock tickers surely led to Charles Dow creating his legendary stock index. The Dow Indexes probably held sway longer than they should have simply due to the fact that the Dow Jones Company owned the Wall Street Journal which published the stock news. It of course preferred its own brand of index. The thing to remember here is that the Dow Index reflects large blue chip companies.
General Electric is the only firm that is still in the index when Charles Dow created it.
A famous story has it that after a few years in the patent office a fellow quit in the early 1900s. He concluded that with all the inventions coming into the office, nothing was left to be done and there could not be any future in the job. Whoops, he was too short sighted.
As if the automobile did not give us enough mobility, the even faster evolution of the airplane is indeed a modern wonder. We went from the idea that heavier than air machines cannot sustain flight to the airplane quickly developing from the Wright's idea to WW I use of the plane to barnstorming in the 1920s. Howard Hughes picked up the surviving Wright Brother in Dayton, Ohio While testing what would become the Constellation. Wright observed that he wingspan of the plane was longer then their original flight.
Imagine.
Herman Hollerith really pioneered the media that became the basis of the modern compupter. His inventions were used in the census of 1890.
NOthing accelerates technology like the necessity and money that drives a war. So no surprise, the ENIAC the first modern large scale computer, came out of WW II.
Even in my college days of 1966-1972, computers were large, complex, subject to breakdown, expensive, and input was quite slow. We were after all still using Herman Hollerith's punch cards to input data.
But the golden age pf manufacturing for America emerged from WWW II, that would be 1948 to 1966. And indeed 1966 was the first time the Dow Indus trials ever topped 1,000.
Airplane technology probably peaked for the time being in the 1960s. While navigation has vastly improved via GPS, we have not improved much on turbo props still used in the C 130, and we have refined the jet engine used in the 707.
The Brokerage Business was still a more or less closed vessel in terms of quotation by the low of the bear market in 1974. One had to pay the exchanges for quotes. It was common for people to sti in brokerage offices to watch the tape, just as they had in 1890.
1974 was also the time that commissions became negotiable. Back then it cost hundreds of dollars to do a single large trade. Today that can be donw for $7.95. Coupled with modern personal computers, and the leisure time to 'invest, the creation of stock index trading not to mention leverage undreamed of in the 1929 such as options, futures, and multiple ETFs, the market averages have soared.
And now m, more than ever, with low interest rates offering savers little reward, we have had a massive rally since 2009, rather like 1932-1937.
The Socionomic Conference is this weekend in Atlanta. We are just now understanding crowd psychology and how it moves markets. This can lead to parabolic run ups and then crashes in a similar negative fashion. The crashes knock out the majority most of who arrived late to the party. And that sets the stage for the next longer term run up in prices.
We have reported on how the public has rushed back to the stock market in the past year. Indeed this parallels the run up from 1998-2000 in the NASD, consider that time frame and what happened.
COMPQ from 1998 - 2001.
From Fall 1968 at 1500 to March 2000 at 5,000 a move of 3.3X, and then back to 1500 by Fall 2001. IT was a Socionomic Event for the record books.
Extreme Expression happens near the end of a move, and as this chart shows, that is true on both the upside and downside.
Now let's step back for a truly long term lok.
NASD from 1982 to Now
After writing this blog for a couple of years I concluded the ideal market letter would only be printed when there was a long term weekly or monthly change. That way subscribers would do nothing unless a major change had occurred. Viewing this chart and understanding that while
1815-1960 was a mechanical revolution
1978 - Now has been a digital revolution
1978 brought the Apple followed by the IBM PC both of which wiped out the typewriter industry not to mention the adding machine industry.
MY thesis has been that th e18 year bull market 1982-2000 would be followed by an 18 year bear market probably 2000-2018. The move ever higher in the COMPQ has brought that into question. The FED easy money policy of zero interest rates has fueled specuation on a massive scale though it has not fueled job growth. Indeed on presentation at the conference this weekend made this important point.
Low interest rates and mandated minimum wages create the ideal environment to develop ever greater mechanization to eliminate human labor. And so we have more robotic arms, drones, and now even driver less cars. The unknown liability of lawsuits regarding all sorts of imagined human indignities has led to ever more reliance on outsourcing labor or eliminating it altogether, The self serve gas pump and check out at the grocery are two prime examples.
Dow Industrial
The COMPQ shows a much greater parabolic rise than the Dow INdus trials. The reason was the embrace of entirely new technologies like MSFT, AAPL, and now FB, AMZN, PCLN, EBAY. This of course has led to even wilder speculation by FB in the likes of Whats App and Oculus. And now we have the latest marraige of industrialization and technology, 3 D printing.
DDD
3 D Rocketed from nothing to 90 in four years. Time has been compressed. This took 18 years from 1982 to 2000 for hte COMPQ but only four years for 3D. And it took only three months to lose one third of its top value. Welcome to El Erian's New Normal, though I don't think this was exactly what he had in mind.
Or consider memory storage for data
Spiral Notebook 1955
5.25 Floppy Disk 1976
3.25 Floppy 1985
ZIP Drive 1998 - 2004 or so, gee that did not last long
Digital Storage from Smart Media maxing at 128 MB to SD card at 64 GB in just a few years
1955 Phonograph Record
1970s 8 Track
1980s Casette Tapes
1990 Digital Tape
1990s CD DVD
Or consider progress in medicine. Heart by pass is now routine, organ transplants are getting that way. In the 1950s for a heart condition you got oxygen and a nitro glycerin pill and a get well card.
And now digital downloads, no media required
Or point here is that the acceleration of digital progress has compressed the length of time this sort of thing used to take. An exception would be the Pony Express circa 1860 which lasted about as long at the Zip Drive.
This acceleration can also be seen in new tech companies like DELL who pioneered just in time laptops in 2001 only to be put on the shelf and go private having failed in molbile technology.
Our point is that the last two cenuries were a whirlwind in progress compared to the 30 or 40 befrore that. INdividuals now have money to invest. With risk free rates yielding near nothing, the money has gone into the stock market. And so most missed the run up this past year. It ain't over yet. The move away from high interest rates in 1982-84 kicked off that bull market in stocks. It has kicked off this one as well.
Thanks for reading The Market Perspective
Dennislelam@gmail.com
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The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned. Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or charts.
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