{"id":23147,"date":"2017-03-06T19:37:07","date_gmt":"2017-03-07T00:37:07","guid":{"rendered":"http:\/\/olduvai.ca\/?p=23147"},"modified":"2017-03-06T19:37:07","modified_gmt":"2017-03-07T00:37:07","slug":"speculative-blow-offs-in-stock-markets-part-2","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=23147","title":{"rendered":"Speculative Blow-Offs in Stock Markets \u2013 Part 2"},"content":{"rendered":"
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Speculative Blow-Offs in Stock Markets \u2013 Part 2\u00a0<\/a><\/h3>\n<\/div>\n
Blow-Off Pattern Recognition<\/strong><\/div>\n
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As noted in\u00a0Part 1<\/a>, historically, blow-patterns in stock markets share many characteristics.\u00a0 One of them is a shifting monetary backdrop, which becomes more hostile just as prices begin to rise at an accelerated pace, the other is the psychological backdrop to the move, which entails growing pressure on the remaining skeptics and helps investors to rationalize their exposure to overvalued markets. In addition to this, the chart patterns of\u00a0 stock indexes before and after blow-off moves are displaying noteworthy similarities as well.<\/p>\n

\u201cOn Margin\u201d \u2013 a late 1929 cartoon illustrating the widespread obsession with the stock market at the time. There was just a 10% margin requirement, i.e., investors could leverage their capital at a ratio of 10:1. The demand for margin credit was so strong, that it pushed call money lending rates in New York up quite noticeably. This in turn made it increasingly difficult to maintain extremely leveraged positions.<\/p>\n

Why do we assume the current move is a speculative blow-off and not just another \u201cnormal\u201d up-leg? The main reasons are the speed and size of the move, the fact that it happens at the tail end of a very sizable advance that has already lasted a full eight years, the chart pattern, and above all, valuations.<\/p>\n

The chart below was\u00a0recently posted by John Hussman<\/a>\u00a0\u2013 it shows the evolution of five different valuation parameters over the entire post WW2 era. As an aside to this: he estimates that another 12% advance would push SPX valuations to the extremes recorded in 2000. We already seem to have passed the 1929 threshold recently, so this is the only record that remains to be aimed for (that does not mean one should expect it to be reached).<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Speculative Blow-Offs in Stock Markets \u2013 Part 2\u00a0 Blow-Off Pattern Recognition As noted in\u00a0Part 1, historically, blow-patterns in stock markets share many characteristics.\u00a0 One of them is a shifting monetary backdrop, which becomes more hostile just as prices begin to rise at an accelerated pace, the other is the psychological backdrop to the move, which […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[5728,6170,14966,1138],"class_list":["post-23147","post","type-post","status-publish","format-standard","hentry","category-economics","tag-acting-man","tag-pater-tenebrarum","tag-speculative-blow-off","tag-stock-market"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/23147","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=23147"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/23147\/revisions"}],"predecessor-version":[{"id":23148,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/23147\/revisions\/23148"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=23147"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=23147"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=23147"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}