“History doesn’t repeat itself but it often rhymes”

May or may not have been said by Mark Twain

JP Morgan Guide to the Markets

I have been thinking about the above chart from the JP Morgan Guide to the Markets. It clearly shows that the sideways action of the past decade and a half has ended. If this is true then US stocks have entered a new boom era and that a multi decade bull market has begun. That view is popular among a few strategists such as Jeff Saut at Raymond James, Jeremey Siegel of the Wharton School of Business, Mike Burnick of Weiss Research, Martin Armstrong of Armstrong Economics and possibly less well known, the retired great Leon Tuey. I have some sympathy towards that view. Money has to go somewhere and the US is the favoured destination. However, when looking at the chart closely I note there seems to be a missing ingredient. At the end of each sideways period a war ends. Unless the War on Terror (WoT) is ending right now I feel that is the missing ingredient kick off the next period of positive sentiment. In my trends for 2017 I did suggest that the WoT tips towards the West, but I am not convinced it has been won.

To see what the chart was missing I recalculated the data by adjusting for inflation. All the data comes from Robert Shiller, someone who is much less bullish, at his site.

This version of the chart is less definitive. The current “break out” is less pronounced. The above chart is just an attempt to recreate the JPM chart. However, Shiller has data going back to 1871. I wondered what this chart would look like had it begun in the late 1800s.

Using the full data set and adjusting the yellow lines offers another view. A less bullish view.

Whether the JPM, the first CPI adjusted chart or the final one is correct is yet to be seen. Getting this decision correctly will make the difference between fantastic returns and market returns, which can be negative when adjusted for inflation for long periods of time.

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