When all you read is gloom, turn here for a much different perspective.

Saturday, November 14, 2009

Year Over Year Market Gains Shine Bright

Even though markets were sliding rapidly last year at this time, the stock market indexes have now recovered to the point that year over year gains are quite substantial.

For the Dow Jones industrial average, the one year gain is now 1,773 points, up 21% from a year ago at this time:

The S&P500 Index is up 220 points or 25% since it's pre-Thanksgiving 2008 level:

And the technology laden Nasdaq has had the best year of the three, rising 651 points, up an impressive 43% from a year ago at this time:

And you might remember that back in early March we speculated that these charts would look very similar to the charts for 1975. And indeed they do.


  1. GNE,

    How does one know when the stock market reflects the true value of companies vs. a reaction to "easy money" policy by the Fed? Some would say that the stock market peaks in the late '90s and the period 2004-2007 were a reaction to the Fed pumping so much cash into the economy that investors had no alternative but to park money in the market. Are we in such a period now (as Roubini would say)?

  2. I wonder how much higher the jobless rate would have been if the market was allowed to plummet? Keep in mind that we were at one point America was hemorrhaging over 700,000 jobs per month. Now it's less than 200,000 in lest than a year. Hummm

  3. Anonymous1,

    Certainly no one knows for sure the real value of a stock or the market in general. From a tangible perspective tho if firms are actually providing a product or service of value and they continue to do so in a way that generates profit then I think that price to earnings is a fairly decent measure.

  4. Anonymous2,

    It would have been a disaster had government taken the same "hands off" stance that the Herbert Hoover administration took proceeding the great depression. They did absolutely nothing. In fact as Hoover was leaving office - in reference to the spiraling economic conditions, Hoover said, "We can do nothing more... we have done all that we can do!" Of course FDR did not agree.

    Fortunately this time neither the leaving administration nor the one taking over stood idly by just watching. There is no doubt in my mind that the swift action this time saved many, many jobs.

  5. It is wrong to say that we escaped (all the problems) because we learnt from the past (not to repeat Hoover and follow FDR) without realizing the sins (debt accumulation etc.) we committed in the past and not repeating the same now. It appears that we went overboard on the latter in terms of our over-extend or over-leveraged way of living. The future has a funny way of making sure that there is something new in it (that cannot be predicted from the past; otherwise, we would be able to calculate what would be happening in the future). So, it is possible we have averted the type of 1930's problem for now; but it does not mean we don't have a problem lurking in our shadows. In fact, given our (the citizens and the country's) financial situation and the relative competitiveness (well diminished as compared to 1930's)we are going to see much bigger if not different kind of depression (perhaps with hyper inflation). I hope it does not happen, but we cannot run our lives based on hope alone when we have forgetten the discipline needed.

  6. Anonymous3,

    I agree that we have not escaped all the problems... but we have learned from the inaction of Hoover and others of the time and took a much better course this time... with respect to debt have a look at my earlier article in January for my thots on that...

    With a closer look one will find that our ability to pay the debt (our GDP) has kept pace (or outpaced) our debt load. And the ratio of debt to income is no where close to where it was in the mid-40s.

    An alternate way to measure the impact of national borrowing is by calculating the total debt as a percentage of income... Just like qualifying for a home loan. Exactly the same exercise that banks use to determine if you are fit to buy that house. Just because your debt may increase, your absolute debt number says nothing about whether the debt is too high for you. Only by also looking at your income, does the bank determine whether or not you can afford your mortgage combined with your other obligations. The same goes for companies as they consider debt to fuel new business and a country to fuel new progress and innovations...
    Many successful businesses leverage greater and greater debt to fuel healthy growing profits.

    I reject the notion that hyper-inflation is the only outcome of the current stimulus...

    See details in my earlier article here.

  7. GNE:

    Great call! I remember your post from the beginning of the year.

    It should also be recalled that stock market aside, the late 1970s/early 1980s was a painful shift for many -- entire industries and job categories disappeared. The gloomers are saying that is happening again to jobs, and unfortunately, they're probably right.

    But at the same time, many economists ignore the incredible growth of new industries and job categories. Nobody foresaw the 80s information boom, or the 90s dot-com boom -- it simply wasn't on any economists' radar screens. They seem to operate under the assumption that the current order will just continue, minus x number of jobs.

    GNE, as you are in the information industry, you likely understand the incredible opportunities that are just beginning to surface and will shape new and growing markets over the coming decade. The gloomers don't seem to put that in their models.

  8. I agree Joe,

    In particular what new features will be enabled with 50Mb/s to our cable modems and 1 TByte of file storage for less than $100! In addition to sales of devices, what new totally managed services will emerge?

    Indeed we are living in absolutely incredible times with unprecedented opportunities.

    Sometimes after the biggest busts, come the biggest booms... Hang on!

  9. The barriers to starting a new business in the information creation or delivery sector are incredibly low. Thanks to cloud computing and managed services, you can launch a business with enormous market reach and bandwidth for just a couple of hundred dollars a month.

    This will be one of the seeds of the next entrepreneurial boom. And, as always, the gloomy economists are missing the signs. As you said, GNE, Hang on!


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