With the stock market headed to the moon, perhaps this is an appropriate timed thread... or maybe premature... I can't time it precisely.
Just in case anyone hasn't heard of the PPT, here is a wiki:
I'm not really trying to start a discussion about what the PPT does, I just thought it was a catchy title for my first new thread posted on ATS.
I am trying to show why the stock market should plunge, using 4 simple charts, and basic algebra.
I open with a graph, using data from the USA Bureau of Labor Statistics.
It shows buying power of the USA dollar since 1913. It shows a 7 year interval, from 1913 to 1920, then after that 10 year intervals.
Here is USA's most famous measurement of prices, the Dow Jones Industrial Average, from 1913 to 2010, measuring its percentage change.
A 7 year average price is the first point in 1913. A 7 year average price is the second point, ending 1920. Then 10 year average prices after
In 2009, scouring stock graphs, I saw a strong inverse relationship, between the measure of the USA dollar and stock prices, especially from August
2008 to November 2008.
The following graphs show a measure of the dollar on the top (NYSE: UUP) and stocks on the bottom (NASDAQ) for 2008.
When I see an inverse relationship, I figure it is reasonable to assess a cause and an effect. The assessment that comes to me is: a weak dollar is
the cause and higher prices are the effect. Observing the last century, I conclude the relationship is not a perfect match, 1 to 1. Still, I have to
start with an assessment.
The first question I have: if the dollar had held the same level of purchasing power, since 1913, what would have happened to stock prices? To
calculate this, multiply stock prices of today, by what's left of $1.
$10,000 represents the approximate average price of the Dow from 2000 to 2010; $0.04 represents what's left of $1.00 since 1913.
10,000 times 0.04 is 400.
Does this mean, if, and only if, the dollar had held its same purchasing power since 1913, the Dow would have only gotten to around $400?
To check an assessment I search for matches.
This first assessment says, the Dow is an accurate measure of 2 things:
In the early 1900s, the Dow was around 100.
If the dollar's value had been constant, there had been no inflation, the Dow's price would only have grown from around 100 to 400, from around 1900
Growth of 4 times.
What matches this growth rate?
What was the population of USA in 1900 compared to 2000?
Roughly, population went from around 75 to 300 million.
Growth of 4 times.
With a match confirmed, I arrive at the conclusion: in regards to aggregate changes in stock prices in the past, and the belief in aggregate changes
in stock prices in the future: the aggregate changes in stock prices in the future, will align to the past changes, in the value of all people.
Expressed simply: STOCKS = PERSON.
So, multiply the average Dow prices, by the amount that $1.00 eroded to at each plotted point to adjust for inflation.
Then translate the changes to percentage amounts. Reflecting changes by a degree of percentage shows the graph in clearer perspective.
At first, drastic deviations in stock prices from population appear to confound the conclusion. I maintain the belief, that this is a sound
expectation, and, though the last 100+ years have been greatly off track, prices and population will eventually align to each other.
Over 10 year intervals, the increases and decreases of prices show as severe, and have drifted far greater or far lesser than population; but prices
have eventually been pulled to population. The volatile graph, I compare to perception, and the smooth graph, I compare to actuality. In spite of the
volatility, I am certain of the belief: perception will align to actuality.
Now, I express the SHORT-TERM target I compute of the stock-market (our most popular measurement of asset prices).
Based on the last graph, population versus price, in 2010, the inflation adjusted price, over the population value, is near a ratio of 5/2: inflation
adjusted prices grew 547% since 1913; and population grew 218% since 1913.
The ratio computes the average price of the DJIA from 2000 to 2010 (which is 10,471).
Considering the time being the middle of 2014, the DJIA is near 17,000;
the value of $1 is mostly steady, holding around 0.04 (considering a 1913 start at 1).
Population is a bit greater in 2014, versus 2010.
In the middle of 2014, since 1913, I compute, inflation adjusted prices have grown 950% and population has grown 228%.
I follow the Nasdaq more closely than the Dow, so I choose to shift to this broader index at this point, (but the Dow goes further back, and is
similar to the Nasdaq, so was used as the initial basis for this thesis).
In the middle of 2014, the Nasdaq is near 4,400.
Solving for x:
950 / 228 = 4,400 / x
950 * x = 1,003,200
1,003,200 / 950 = 1056
Then, considering the purchasing power of the dollar:
excessive dollars, issued and demanded, caused a drop in 1 dollar’s purchasing power, from roughly 1 to 0.50, from 1913 to 1920;
by 1940, corrective actions had strengthened the dollar to near 0.70;
since then, excessive actions have caused the devaluation of the dollar to 0.04; I am guessing, corrective actions could eventually cause it to
increase to 0.12 (an increase of 3 times);
side note: corrective actions involve collecting high risk debts, removing excess dollars from the marketplace;
again, solving for x:
12 / 4 = 1,056 / x
12 * x = 4,224
4224 / 12 = 352
So, if my belief becomes true, and, so to speak, perception (as in prices) can more closely align to actuality (as in population), Nasdaq might align
Using a Dow to Nasdaq ratio of 6, this calculates to Dow $2,112.
That this action will strengthen the dollar’s value from 0.04 to 0.12 I estimate by drawing a typical trend line.
Why should the dollar become strong at this point? Graphs with decelerating losses generally reach a point where they flat line. I believe there
will be a nice increase, as the trend levels out.
The dollar currently appears to me as being at a critical inflection point. In all of 2014 it showed strength.
At the end of 2014, it seemed to me as being clear, the major question was not: will the dollar have a major increase in value (when junk loans go
sour); but when will this major increase be complete?
In Dec. 2016 the dollar is near the high point it set in 2014; and stocks continue to set all time highs, with the Dow eyeing 20,000.