Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog

https://thefelderreport.com/2018/07/25/why-it-might-be-a-good-time-to-revisit-ray-dalios-1937-analog/

by ry4n413 • 8 years ago

43 31 8 years ago

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• 8 years ago

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.

ethn2• 8 years ago

Chanos kept his short on TSLA secret for 3.5 years.

Animats• 8 years ago

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• 8 years ago

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).

imnotlost• 8 years ago

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

https://twitter.com/EconomPic/status/1022191087589314561

AnimalMuppet• 8 years ago

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

pembrook3• 8 years ago

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) 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.

jmalicki• 8 years ago

"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." - Two Sigma, Jane St., and RenTech are just slightly more refined versions of technical analysis - like comparing modern astrophysics to Ptolemny.

"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." - everyone should be scared. For the typical person, recessions cause a chance of job loss, which for the majority is a far bigger financial disaster than a market crash.

pembrook3• 8 years ago

Ultimately it comes down to semantics but I think there's a lot of confusion about the difference between traditional technical analysis and what a quant shop like Rentech or TwoSigma does. Quantitative strategies might use certain technical data as inputs, but it's not the same thing as drawing teacups on charts and publishing an article in Market Watch saying the world is going to collapse.

Nobody knows what RenTech is doing in the medallion fund, but I can tell you with certainty they do not have analysts drawing head-and-shoulders patterns (ie. traditional technical analysis). I think we could argue semantics here again but my point is ultimately that what this article is doing with that chart makes no sense.

I do agree that increased risk of job loss is of course bad and that recessions are bad in general, but this article is about the stock market.

melling4• 8 years ago

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...

pembrook3• 8 years ago

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

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.

monitorman• 8 years ago

when you keep overlaying charts, eventually, one of them will be right.

lokedhs• 8 years ago

For every market event you are always going to find someone who predicted it. People predict everything at every point in time.

Getting one prediction right doesn't prove anything. Getting a lot of them right also doesn't prove anything. No one has managed to show a streak of accurate predictions unless they silently purge their incorrect ones.

Humans have a tendency to focus on the successes and ignore all the failures. It's in human nature and it's very hard to avoid it.

darawk5• 8 years ago

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• 8 years ago

Why is that a bad thing?

merlincorey3• 8 years ago

In unsophisticated terms, I think it's basically that you can probably play with nearly any two time series graphs and then manipulate the data such that you find correlations.

Of course, that doesn't mean there actually is any correlation.

darawk5• 8 years ago

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%.

patricklovesoj• 8 years ago

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

ry4n413• 8 years ago

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.

ethn2• 8 years ago

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...

fake-name• 8 years ago

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

Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog

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