Something Positive?

I put relatively little faith in many of these forms of analysis, but for those who like regressions here is one of the better charts I have seen.  This one shows US stock market growth since 1871 and plots a mean trend line through it to today.  This chart gives hope that we may be near the bottom of the stock market downdraft.  I certainly hope so and have some belief that this might be the case.  We may have hit bottom last November, but we also may bounce along that bottom for some time (the “Japan Scenario”), as the chart shows we have done in the past here in the US.

More importantly, however, I think these sort of reversion to the mean arguments have serious limitations.  The conditions of the last 130 years that led to overall economic growth in the U.S. are unlikely to be the basis for continued prosperity.  New foundations for long term growth may or may not appear.  Opportunities certainly exist for that economic growth (e.g., new energy sources), but so do large obstacles (e.g., an aging population).  To merely assume that past growth predicts future growth seems naive to me.  I prefer to look at current data along with historical context rather than merely extrapolate from past events.

That being said, take a look at the chart.  It is interesting.


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