The Much-Touted 1929 Analog

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There has been a lot of chatter lately about “the 1929 analog”, which has even been lingering on the front page of the couldn’t-be-more-mainstream CBS Marketwatch. The article has garnered over 2,000 comments. Here’s one of them, to give you a sense as to the erudite and thoughtful discourse on the topic:

STUPID CHARTS like this one only SCARES people from investing.  Stupid people that put up STUPID charts like this, they should not be allowed to work at MW.  Since most Americans are pretty STUPID to begin with and believe STUPID stuff like this, I come to the conclusion that STUPIDITY reigns supreme by even discussing STUPID charts like this one.  How “stupid” can people get?  I must be really bored even discussing STUPID!

So clearly not everyone drops to their knees and worships the all-powerful analog.

There was a time I attached an almost mystic significance to well-formed analogs, but not anymore. On a scale of 1 (analogs are, to quote our friend above, “STUPID”) to 10 (“the future will map out precisely like the past), I’m probably about a “7”, whereas I used to be about a 9.5. All the same, I decided to take my pen at this. So here’s the Dow in 1929 (the numbering is mine, and I went from right to left):


And here is the present:


That really is quite an extraordinary alignment. It might go back even farther than the 17 points I’ve noted, but that’s the only portion of the graph I bothered fetching. So the obvious conclusion one is supposed to draw is that we are at the cusp of a breathtaking fall of historic magnitude.

Well, look, as much as I’d like that – and you know me well enough to know I’d really, really, really like that – the mere fact that this analog is getting so much attention removes some of its credibility. Although I would counter my own argument here and state that a very similar 1929 analog was bandied about in October 1987 (famously recorded on the Paul Tudor Jones “Trader” documentary), but it wasn’t exactly a secret held by just Peter Borish and PTJ. On the contrary, the analog was printed and discussed in no less than the Wall Street Journal shortly before the crash of 1987.

Over the past five years, if there’s one thing that’s been consistently served up to bears, it’s a big, heaping dish of disappointment. I’m not sure why the Fed would want to change the menu this time or, frankly, ever. Of course, they will lose control at some point, whether it’s next week or ten years from now, and the later the date, the more out-of-control it will be.

I, for one, am far beyond the point of being sick of waiting for the markets to – as the euphemism goes – “correct”. But I’m not going to let that sickness seduce me into certitude that the above analog is going to pan out As God Intended. Maybe it will; maybe it won’t, or, most probably, maybe it’ll pan out in a way that neither side expects.