What’s With 21st Century NYSE Market Breadth?

For the past year the Dow Jones has been advancing off the bottom of an 18% correction, and has been daily closing at new all-time highs or within 5% of one. It’s good market action, but having to write market commentary on a market that changes little from one week to the next for over a year becomes tedious. This being the case I thought I’d go over the bull-market mechanics of the last few decades.

Since 1982 the Federal Reserve’s “monetary policy” has become one that dictates ever-rising valuations in the financial markets.It just has. For decades now, anytime the financial markets see their valuations begin to deflate, all eyes turn to the Chairman of the Federal Reserve to see what he or she is going to do about it.So far the Chairman has never disappointed.

But it’s a mug’s game expecting this game of cat and mouse the FOMC is playing with Mr Bear can continue forever, because it won’t.

Here’s the Dow Jones Bear’s Eye View (BEV) chart going back to January 1982, or the last four decades of the Dow Jones.It’s also a study of the effects of monetary inflation on market valuations.

What’s a Bear’s Eye View chart?It looks at a market series as Mr Bear does; with each new all-time high is equal to 0% (BEV Zero), and all other data points not a new all-time high seen as a percentage claw back from a BEV Zero.

Effectively the Bear’s Eye View compresses market data into a range of 100%, with each new all-time highs registering 0% (and never more), and a total wipeout in valuation registering -100%.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 636\Chart #1   DJ BEV 1982 to 2020.gif

Note all the daily closings between the 0% & the -5% lines, the daily closings at or within 5% of the Dow Jones’ last all-time highs since January 1982.The specific numbers of these closings can be seen on the right side table below; between these two lines contains 50.53% of all daily closings of the past thirty-eight years.

That’s an enormous percentage when compared to the Dow Jones first four decades of trading (left side table below), where these two lines contained only 12.25% of the daily closings.

The actual difference between these two eras of market history is the first four decades of the Dow Jones existence; the Federal Reserve either didn’t exist (before 1914), or the Federal Reserve hadn’t yet begun “inject liquidity” into the financial markets.

Here’s a chart plotting the Federal Reserve’s balance sheet plus Currency in Circulation (paper money) since April 1953.The first three decades seen in the chart below saw monetary inflation flow into consumer goods. During the Carter Administration (1977 to 1980) CPI inflation increased to over 10% annually.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 636\Chart #2   Fed Bal Sheet.gif

Then Fed Chairman Paul Volcker, by increasing interest rates to double-digits for five years (1978 to 1982 chart below) stopped monetary inflation flowing into consumer goods.  

But once dollars are created by the Federal Reserve they have to go somewhere in the economy.Beginning in August 1982 monetary inflation coming from the Federal Reserve began flowing into financial-market valuations such as stocks and bonds resulting in a series of bull and bear markets (inflationary booms and deflationary busts) recorded in the Dow Jones’ BEV chart above.

But whether it’s consumer goods, or stock and real-estate valuations expanding at annual double-digit percentage rates, it’s not actual “economic growth.”What we see above is a decades long, systematic devaluation of the global-reserve currency, and that is something the “policy makers” promised they would not do when they created the Bretton Wood’s Monetary Accords in 1945.

But “monetary history” is paved with lies.Doctor Bernanke told this whopper under oath before Congress, as he was actively implementing his QE1 (chart above).

(When asked directly during congressional testimony if the Federal Reserve would monetize U.S. government debt, the Fed Chairman responded) "The Federal Reserve will not monetize the debt."

- Doctor Benjamin Bernanke: June 03, 2009

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