Just a few months ago as I worried (as I have since November of 2016) that a stock market crash was imminent, I was presented with a line chart showing Dow Jones performance over the last seven decades.
I wish I had that chart to share, but it was paper, not digital, and I suck at saving paper archives.
What it showed, clear as day, is that the DJI correlates with energy prices (inverse correlation, the lower the energy prices, the higher the index) and corporate profits. Nothing else came even close to the power of these two variables.
That still strikes me as nonsense. Consumer confidence, liquidity, macroeconomics ... unemployment ... disastrous problem in federal government ... how could it be so tied to just these two factors? That seems way too simple.
But the chart was pretty clear. So the DJI was way up until March because of profits (tax cut for corporations) and declining energy prices. And most of the other factors we mention track right back to profits.
We have the once-in-a-lifetime (I hope) pandemic. So far, the DJI crash could be tied directly to declining profits and expectations of declining profits. But it could also be the black swan, right? Scares the daylights out of me.
Back in the early 1980s we had Ezra Solomon (Google him) teaching economics at the GSB. One of us asked him whether the crazy interest rates of the time were going to continue going up or back down. He shrugged, paused, sighed, and said (paraphrasing) "that's the magic of markets. Every price is the exact balance between those who think it's going up and those who think it's going down. It's automatic."
He paused again, and added (again, paraphrasing -- it was 40 years ago): "And look at me. I'm supposed to be an expert on these things. But if I knew that, I'd be rich. And I'm not rich."
I wish I had that chart to share, but it was paper, not digital, and I suck at saving paper archives.
What it showed, clear as day, is that the DJI correlates with energy prices (inverse correlation, the lower the energy prices, the higher the index) and corporate profits. Nothing else came even close to the power of these two variables.
That still strikes me as nonsense. Consumer confidence, liquidity, macroeconomics ... unemployment ... disastrous problem in federal government ... how could it be so tied to just these two factors? That seems way too simple.
But the chart was pretty clear. So the DJI was way up until March because of profits (tax cut for corporations) and declining energy prices. And most of the other factors we mention track right back to profits.
We have the once-in-a-lifetime (I hope) pandemic. So far, the DJI crash could be tied directly to declining profits and expectations of declining profits. But it could also be the black swan, right? Scares the daylights out of me.
Back in the early 1980s we had Ezra Solomon (Google him) teaching economics at the GSB. One of us asked him whether the crazy interest rates of the time were going to continue going up or back down. He shrugged, paused, sighed, and said (paraphrasing) "that's the magic of markets. Every price is the exact balance between those who think it's going up and those who think it's going down. It's automatic."
He paused again, and added (again, paraphrasing -- it was 40 years ago): "And look at me. I'm supposed to be an expert on these things. But if I knew that, I'd be rich. And I'm not rich."