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Yet Another Long-Term Mean Reversion Chart

Tyler Durden's picture




 

As the S&P 500 pulls within a few percentage points of its nominal all-time highs, despite macro-uncertainty and micro-delusion, perhaps (as UBS' Peter Lee notes) a longer-term perspective is warranted. For over 80 years, the S&P 500 (or its proxy) has cyclically reverted to it its logarithmic trend-line growth. The last time the market pulled away from this bullish up-trend was in 1982 (and the previous period of cyclical reversion took 32 years from 1942 to 1974) and suggests the S&P 500 could well revert to around an 850 level within the next year or so. Perhaps Lee (the anti-thesis of JPM's Tom Lee) needs to read some Birinyi to really understand how to extrapolate? Still, an 80-plus year trend-line perhaps offers some color.

 

The 80-Year S&P 500 Log Chart Trendline...

 

Chart: Bloomberg

 

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Wed, 01/16/2013 - 16:23 | 3159336 Nihilarian
Nihilarian's picture

subsequently getting a bearish Head & Shoulders

Wed, 01/16/2013 - 16:38 | 3159411 YesWeKahn
YesWeKahn's picture

my pupu Bernake won't let it happen.

Wed, 01/16/2013 - 17:30 | 3159667 max2205
max2205's picture

32 years (wisper)

Wed, 01/16/2013 - 18:38 | 3159967 Panafrican Funk...
Panafrican Funktron Robot's picture

Full dislocation of nominal vs. real.  We are in "who the fuck knows" territory.  

Wed, 01/16/2013 - 16:54 | 3159473 Joe moneybags
Joe moneybags's picture

The title of the article uses the term "mean reversion", but the green line in the chart is not the mean: it's the very bottom of the channel reached by the S&P once every 32 years. Although we may be due to revisit such an oversold condition, due to the calendar, there are many factors in play that are stretching the current overbought period.

Draw another green line connecting the top points on the graph, and you'll see that we currently are in the middle of the channel.  Maybe mean reversion has arrived.

Wed, 01/16/2013 - 17:05 | 3159554 chet
chet's picture

Yes. That is pretty sloppy analysis, or use of language anyway.

Wed, 01/16/2013 - 17:08 | 3159568 SelfGov
SelfGov's picture

This is my favorite regression to trend type chart...

 

http://www.advisorperspectives.com/dshort/guest/John-Carlucci-111208-The...

 

Wed, 01/16/2013 - 16:23 | 3159339 SeverinSlade
SeverinSlade's picture

Funny how 15+ trillion in emergency liquidity only gets you back to where we were at when the crisis officially began.

Wed, 01/16/2013 - 17:02 | 3159537 fuu
Wed, 01/16/2013 - 17:31 | 3159677 max2205
max2205's picture

That fucking line is going down (sometime)....it's all BS anyway

Wed, 01/16/2013 - 18:08 | 3159828 Fidel Sarcastro
Fidel Sarcastro's picture

Correction - it's all ballbearings these days (anyway) -- Fletch

Wed, 01/16/2013 - 16:25 | 3159354 Glass Seagull
Glass Seagull's picture

 

 

Not if fiat-based inflation has anything to say about it. 

"We print because it makes the charts look nicer."  - Every Central Banker...ever

Wed, 01/16/2013 - 16:26 | 3159356 pragmatic hobo
pragmatic hobo's picture

VXN collapsing today ...

Wed, 01/16/2013 - 16:26 | 3159362 rubearish10
rubearish10's picture

Yeah but you can't short this thing. The FED and its worlwide bankster CB buddies will flood and flush faster than you could pee and poo! Could only stack the metal and feel safe, nuts!

Wed, 01/16/2013 - 16:27 | 3159366 disabledvet
disabledvet's picture

Are prices for food and energy about to collapse? I mean 25,000 for an acre of land in Iowa?

Wed, 01/16/2013 - 16:30 | 3159375 rubearish10
rubearish10's picture

A steady to mildy disinflationary environment (according to BS statville) does not flash commodity collapse, nope! Sorry!

Wed, 01/16/2013 - 16:28 | 3159368 rubearish10
rubearish10's picture

Give me one catalyst that really might work to prove out this chart! Just one dammit!

Wed, 01/16/2013 - 16:30 | 3159374 PUD
PUD's picture

No time has ever been like this time. They did not have 401ks 80 years ago, cnbc, daytrading, computers, hft etc etc. Then is not now.

Wed, 01/16/2013 - 16:31 | 3159378 realtick
realtick's picture

Nice chart

Wed, 01/16/2013 - 16:31 | 3159380 tooriskytoinvest
tooriskytoinvest's picture

While The Market Is Showing Signs Of Topping Out, Russia Is Warning The World Is On The Brink of A Fresh “Currency War,” And A “Frightening Pattern” Suggest Stocks Could Plummet 42% From Here

http://investmentwatchblog.com/while-the-market-is-showing-signs-of-topp...

Wed, 01/16/2013 - 16:35 | 3159401 adr
adr's picture

Stealth inflation is everywhere at the start of 2013. Many restaurants have made a big deal about no price increases for 2013. What they didn't tell you is that they made every meal smaller, part of getting the calorie count lower for Obamacare.

You used to get a 10oz steak for $14.99 with two sides. Now its an 8oz steak with one side.

McDonalds $3 value meal used to have a medium drink and medium fries, now its a small drink and small fry.

Kids juice boxes have mysteriously lost 2oz.

My bread loaf is still $1.49 but it looks like a couple slices are missing, yep missing an oz.

A lot of the size stuff I don't really care about because you really didn't need a plate that big for a meal anyway, but the cost I do care about. Less is less and paying the same for less is still inflation.

Wed, 01/16/2013 - 16:36 | 3159403 SheepDog-One
SheepDog-One's picture

Must....Goal....Seek....

Wed, 01/16/2013 - 16:39 | 3159417 Spastica Rex
Spastica Rex's picture

I wonder if instead the S&P 500 could just keep going up for ever. Why not?

Wed, 01/16/2013 - 16:44 | 3159434 Joe moneybags
Joe moneybags's picture

It can, and probably will go up forever, with the inflation (dollar depreciation) that is structured into our modern economy.

Wed, 01/16/2013 - 16:40 | 3159423 adr
adr's picture

So that chart says we should be at 1500 in 2025.

FUCK YEAH GO ALL IN BABY, 1500 IS HIGHER THAN 1472, LOTS OF MONEY TO BE MADE!!!!!!! I'M GOING TO BE RICH BEOTCH!!!

 

Right? That's the reaction they want?

Wed, 01/16/2013 - 16:41 | 3159424 Joe moneybags
Joe moneybags's picture

Mean reversion doesn't require that a price chart must drop until it meets a multi-year uptrend line.  The mean about which price fluctuates is a moving target, influenced by many factors, such as inflation/deflation rates, state of the economy, taxes, etc.  Today's mean value is not just an inflation-adjusted extension of yesteryear's mean value.

Sometime far in the future the S&P may indeed drop down to the uptrend line shown in the article.  But then, our economy, the value of the dollar, interest rates, PM prices, etc., will be entirely different from where they are today.  Waiting patiently for mean reversion to that uptrend line is a poor investment strategy, as most of us will be dead before that happens.

Wed, 01/16/2013 - 16:41 | 3159425 nobusiness
nobusiness's picture

"This time is different"

Wed, 01/16/2013 - 16:45 | 3159443 Calc
Calc's picture

Yup...  By the way, word of the day:

Ineptocracy

Ineptocracy is a system of government in which the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves, or to succeed, are rewarded with the goods and services paid for by the confiscated wealth and the diminishing number of producers.

Wed, 01/16/2013 - 16:52 | 3159486 AccreditedEYE
AccreditedEYE's picture

Best 5 minutes of the day coming up. Almost as good as fixed dice.

Wed, 01/16/2013 - 16:54 | 3159493 random shots
random shots's picture

Would love to see Long Term GDP Growth vs. Historical SP500 trendline. 

Wed, 01/16/2013 - 19:28 | 3160177 hannah
hannah's picture

march 2013 will be four years of massive QE and we havent collapsed. we also havent 'gobe to the moon' but we did almoast get 100% back for the rich stock holders. i dont think the fed has the powder to push us up 500 s&p points over the next several years.

 

i say we crash soon....oh and this time, all the financial institutions and the fed are wasted. WE DONT FALL TO 800, WE FALL TO ZERO...........

Wed, 01/16/2013 - 21:11 | 3160564 Lord Koos
Lord Koos's picture

Looks a lot like the 12 year gold chart...

Thu, 01/17/2013 - 09:19 | 3161723 Knightbk
Knightbk's picture

That dumb ass hasbeen calling for 850 for four years now. This site is just more and more bs lately.

Thu, 01/17/2013 - 09:51 | 3161832 AlphaHunter001
AlphaHunter001's picture

 

So the S&P should pull back because it's gone up for such a long period of time, this also means that gold is due to pullback as well?

 

You can't 'choose' to be always bearish on one market and always bullish on the other by picking and choosing which data points to use.

 

Don't forget, the market is a forward looking indicator. You can't simply say "things are bad now", but the market looks out 12-16 months... and for those people including this site that were so BEARISH in 2009 when the market started moving up you were proved wrong once again

 

The market is telling us that in 2014-2015 we will see a strong economic rebound and I think that's a pretty reasonable ascertion

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