7 ms·

Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog

43 points by ry4n413 8y ago

merlincorey 8y ago
This article predicts a coming crash of markets, essentially. It attempts to make some parallels to history and show similar graphs from the past and today. Of course, if this information were truly accurate, they wouldn't tell anyone and they'd just start shorting all the things...
- cbayram 8y ago
  Shorting and then telling the herd is exactly what’s done. Once you take the short position, you want to scream at the top of your lungs and bring about that catalyst/trigger asap. Spread rumors, write hit pieces, etc... Observe the half-baked hit pieces on TSLA by Chanos and co. When right, these people will dampen the bubbles and falls preventing catastrophe of greater magnitudes.
  - ethn 8y ago
    Chanos kept his short on TSLA secret for 3.5 years.
Animats 8y ago
No, not 1937. Very different situation. The US was slowly coming out of the Great Depression with massive Federal spending and jobs programs. Union membership had doubled in the previous five years. Complete opposite to today.
- tcbawo 8y ago
  We might be looking at a similar situation to the 1930s again, but with the USA closer to 1930s Europe and China closer to 1930s USA. China has had a recent speculative stock bubble. Also, the Smoot-Hawley Tariffs took effect in 1930 (we're just threatening trade war now).
darawk 8y ago
> The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. Please tell me you didn't just correlate two price series :/
- curiousgal 8y ago
  Why is that a bad thing?
  - merlincorey 8y ago
    In unsophisticated terms, I think it's basically that you can probably play with nearly any two time series graphs and then manipulate the data such that you find correlations. Of course, that doesn't mean there actually is any correlation.
    - darawk 8y ago
      No, it's a specific issue with price series. The correct way to do it is to correlate the return series.
      - merlincorey 8y ago
        I agree that's a bigger fundamental issue, but I still think that if you take two different arbitrary windows from two time series of pricing data and then adjust the scaling of one to "match" the other, one can "find" many of these "correlations", even within the same pair of time series.
        darawk 8y ago
        Ya, you're right. That is an issue as well, though I think it's a second order one here. His correlation likely disappears if he does it on the returns. But spurious correlations, even done mathematically correctly, abound.
  - 8y ago
imnotlost 8y ago
That broken clock may never be right, he's been saying the same thing since 2011: https://twitter.com/EconomPic/status/1022191087589314561 https://twitter.com/EconomPic/status/1022191087589314561
- AnimalMuppet 8y ago
  A broken clock is right twice a day, but a running-but-off clock can be wrong forever ;-)
  - deleted 8y ago
    [deleted]
pembrook 8y ago
The Dalio points might be relevant but overlaying a chart on top of another and drawing analogues based purely on aesthetics is bad finance. There's a reason hedge funds aren't pitching clients on technical analysis based trading...it's because technical analysis is the astrology of the investment world. Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance. Capital Minded (http://capitalminded.com http://capitalminded.com) did an interesting chart in one of their recent briefings that showed stock market performance through the last 9 recessions. I'll try and dig it up and edit this comment. But essentially half of the time, the market is net positive by a lot during recessions. Hence why market timing is a fool's errand.
- jmalicki 8y ago
  "There's a reason hedge funds aren't pitching clients on technical analysis based trading...it's because technical analysis is the astrology of the investment world." - Two Sigma, Jane St., and RenTech are just slightly more refined versions of technical analysis - like comparing modern astrophysics to Ptolemny. "Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance." - everyone should be scared. For the typical person, recessions cause a chance of job loss, which for the majority is a far bigger financial disaster than a market crash.
  - pembrook 8y ago
    Ultimately it comes down to semantics but I think there's a lot of confusion about the difference between traditional technical analysis and what a quant shop like Rentech or TwoSigma does. Quantitative strategies might use certain technical data as inputs, but it's not the same thing as drawing teacups on charts and publishing an article in Market Watch saying the world is going to collapse. Nobody knows what RenTech is doing in the medallion fund, but I can tell you with certainty they do not have analysts drawing head-and-shoulders patterns (ie. traditional technical analysis). I think we could argue semantics here again but my point is ultimately that what this article is doing with that chart makes no sense. I do agree that increased risk of job loss is of course bad and that recessions are bad in general, but this article is about the stock market.
patricklovesoj 8y ago
With current tax cuts, I can see a delay in down turn compared to what happened before
- ry4n413 8y ago
  what was interesting was trump's comment the other day regarding paying down the debt using the gained taxes in gdp growth. I haven't done the math myself, but it's an interesting scenario to thing through if it's possible because I don't think it's one that many people are thinking about.
ethn 8y ago
Ray Dalio said the same thing in 1982, pushing him near bankruptcy to the point where he was forced to let go of all his employees—there's no doubt he learned since then but keep in mind he also made the same error in 2011. https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nearly-shut-bridgewater-hedge-fund.html https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nea...
fake-name 8y ago
Jesus, why does their garbage jerberscript break ctrl+click?

43 points by ry4n413 8y ago

This article predicts a coming crash of markets, essentially. It attempts to make some parallels to history and show similar graphs from the past and today. Of course, if this information were truly accurate, they wouldn't tell anyone and they'd just start shorting all the things...

cbayram 8y ago
Shorting and then telling the herd is exactly what’s done. Once you take the short position, you want to scream at the top of your lungs and bring about that catalyst/trigger asap. Spread rumors, write hit pieces, etc... Observe the half-baked hit pieces on TSLA by Chanos and co. When right, these people will dampen the bubbles and falls preventing catastrophe of greater magnitudes.
- ethn 8y ago
  Chanos kept his short on TSLA secret for 3.5 years.

Animats 8y ago

No, not 1937. Very different situation. The US was slowly coming out of the Great Depression with massive Federal spending and jobs programs. Union membership had doubled in the previous five years. Complete opposite to today.

tcbawo 8y ago
We might be looking at a similar situation to the 1930s again, but with the USA closer to 1930s Europe and China closer to 1930s USA. China has had a recent speculative stock bubble. Also, the Smoot-Hawley Tariffs took effect in 1930 (we're just threatening trade war now).

darawk 8y ago

> The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%. Please tell me you didn't just correlate two price series :/

curiousgal 8y ago
Why is that a bad thing?
- merlincorey 8y ago
  In unsophisticated terms, I think it's basically that you can probably play with nearly any two time series graphs and then manipulate the data such that you find correlations. Of course, that doesn't mean there actually is any correlation.
  - darawk 8y ago
    No, it's a specific issue with price series. The correct way to do it is to correlate the return series.
    - merlincorey 8y ago
      I agree that's a bigger fundamental issue, but I still think that if you take two different arbitrary windows from two time series of pricing data and then adjust the scaling of one to "match" the other, one can "find" many of these "correlations", even within the same pair of time series.
      - darawk 8y ago
        Ya, you're right. That is an issue as well, though I think it's a second order one here. His correlation likely disappears if he does it on the returns. But spurious correlations, even done mathematically correctly, abound.
- 8y ago

imnotlost 8y ago

That broken clock may never be right, he's been saying the same thing since 2011: https://twitter.com/EconomPic/status/1022191087589314561 https://twitter.com/EconomPic/status/1022191087589314561

AnimalMuppet 8y ago
A broken clock is right twice a day, but a running-but-off clock can be wrong forever ;-)
- deleted 8y ago
  [deleted]

pembrook 8y ago

The Dalio points might be relevant but overlaying a chart on top of another and drawing analogues based purely on aesthetics is bad finance. There's a reason hedge funds aren't pitching clients on technical analysis based trading...it's because technical analysis is the astrology of the investment world. Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance. Capital Minded (http://capitalminded.com http://capitalminded.com) did an interesting chart in one of their recent briefings that showed stock market performance through the last 9 recessions. I'll try and dig it up and edit this comment. But essentially half of the time, the market is net positive by a lot during recessions. Hence why market timing is a fool's errand.

jmalicki 8y ago
"There's a reason hedge funds aren't pitching clients on technical analysis based trading...it's because technical analysis is the astrology of the investment world." - Two Sigma, Jane St., and RenTech are just slightly more refined versions of technical analysis - like comparing modern astrophysics to Ptolemny. "Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance." - everyone should be scared. For the typical person, recessions cause a chance of job loss, which for the majority is a far bigger financial disaster than a market crash.
- pembrook 8y ago
  Ultimately it comes down to semantics but I think there's a lot of confusion about the difference between traditional technical analysis and what a quant shop like Rentech or TwoSigma does. Quantitative strategies might use certain technical data as inputs, but it's not the same thing as drawing teacups on charts and publishing an article in Market Watch saying the world is going to collapse. Nobody knows what RenTech is doing in the medallion fund, but I can tell you with certainty they do not have analysts drawing head-and-shoulders patterns (ie. traditional technical analysis). I think we could argue semantics here again but my point is ultimately that what this article is doing with that chart makes no sense. I do agree that increased risk of job loss is of course bad and that recessions are bad in general, but this article is about the stock market.

patricklovesoj 8y ago

With current tax cuts, I can see a delay in down turn compared to what happened before

ry4n413 8y ago
what was interesting was trump's comment the other day regarding paying down the debt using the gained taxes in gdp growth. I haven't done the math myself, but it's an interesting scenario to thing through if it's possible because I don't think it's one that many people are thinking about.

ethn 8y ago

Ray Dalio said the same thing in 1982, pushing him near bankruptcy to the point where he was forced to let go of all his employees—there's no doubt he learned since then but keep in mind he also made the same error in 2011. https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nearly-shut-bridgewater-hedge-fund.html https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nea...

fake-name 8y ago

Jesus, why does their garbage jerberscript break ctrl+click?