The Federal Reserve’s “Policy” Of Perpetual Bull Markets

Do you see what I see in the Bear’s Eye View chart below?  The Dow Jones’ last BEV Zero (last all-time high) was on October 3; and for the first time since October 3 the Dow Jones broke down below its BEV -10% line. It goes without saying, as I’m sure the bulls would be happy to point out to you, that the Dow Jones could reverse direction next week and see a few more BEV Zeros in the chart below before the New Year.

The bulls could be right about that. Still, I think it’s important to point out to my readers that as of the close of this week the Dow Jones has been trending the wrong way for over two months now, and now on a double-digit percentage basis.  

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 579\Chart #1   DJIA BEV 1982_18.gif

Still one can’t argue with success; since January 1982 the Dow Jones has seen its strongest period of “growth” (inflationary expansion) in its history.  Look at the frequency distribution table I placed in the BEV chart. I highlighted the BEV Zero (0%) and -0.0001% rows. The BEV Zero row contains each new daily all-time high, and the -0.0001% row every daily closing just a fraction short a new all-time high down to -4.999% from one.  Together these two rows contain 49.69% of the 9,320 daily closings for the Dow Jones since January 1982. Statistically speaking, this means every other daily closing in the past thirty-seven years the Dow Jones was at, or within 5% of making a new all-time high.

To put that into historical context, below are three frequency distribution tables analyzing daily Dow Jones BEV data going back to February 1885 seen in the following Dow Jones Bear’s Eye View chart.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 579\Chart #2   Dow Jones BEV 1885 to 2018.gif

The far left table below spans 1885 to the close of today.  Again, looking at the table’s BEV Zero and -0.0001% rows, the Dow Jones closed at or within 5% of a BEV Zero in only 25.19% of its 36,681 daily closings of the past 134 years.  

This span of time extends back to when steam locomotives were the hot high-tech sector up to now when social media companies are; when the Dow Jones valuation increased from 39.07 on 16 February 1885 to 26,838.39 on 03 October 2018. That’s a gain of 68,126%, a 687 fold increase that would not have been possible had the Federal Reserve not been as committed to “economic growth” as it has always proven to be.

The next table of the three is from February 1885 to August 1982, the month and year the stock market began a perpetual bull market that many “market experts” believe continues today.  For these ninety-seven years the Dow Jones closed at or within 5% of a BEV Zero in only 16.75% of the 27,523 daily closings.

It should be noted from 1966 to August 1982, the Dow Jones had on five occasions risen above 1000, but then failed to stay above 1000 with significant pain inflicted on investors from the following five market declines. Market psychology in August 1982 was such that any time the Dow Jones broke above 1000, the smart money was going to short the market or get severely spanked by Mr Bear.

On December 16, 1982 the Dow Jones closed at 990.25. It would never again close below 1000 as the Federal Reserve’s new “monetary policy” was one of perpetual bull market at the NYSE. The far right frequency table covers this period of market history, where the Dow Jones closed at, or within -4.999% of a new all-time high 50.57% of its 9,158 daily closings as it soared to 26,838 on October 3rd of this year.

Seeing every other day a new all-time high or within -4.999% of one for a thirty-six year period seems a bit extreme, but as seen below it gets worse.

These two frequency tables cover the Roaring 1920's Bull Market and the Post Credit Crisis market advance.  If you look at their total days they are roughly the same. But note in the 1920's the NYSE also traded on Saturdays. So on a yearly basis the 1920's data occurred in eight years while the post credit-crisis advance has gone on now for almost ten years.

Once again we look at the top two rows of the tables, where in the bull market of the 1920's an amazing 67.47% of the 2,382 daily closings were new all-time highs, or within -4.999% of one.  

The Roaring 1920's Bull Market was an inflationary-market mania.  And until Dr. Bernanke began reflating market valuations in the wake of the sub-prime mortgage debacle with his three bouts of QE, no other period of market history came close to its inflationary excesses.  

But note how since March 9, 2009, to this week’s closing, the Dow Jones closed at a new all-time high, or within -4.999% of one for an astounding 78.41% of these 2,464 daily closings.  

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Christine Tan 9 months ago Member's comment

Really interesting, thanks.