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Could plot both series on the same log chart?

Anyway, looking at that S&P series I can't help but marvel at the succession of bubbles from 1950 to 1975, and I am reminded of my

Big bubbles have little bubbles
which feed on their liquidity
and little bubbles have lesser bubbles
and so on to volatility.
And the greater bubbles have themselves
even greater bubbles to ride on;
while these again have greater still
and greater still, 'till meltdown.


En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Aug 21st, 2009 at 02:12:28 AM EST
[ Parent ]
Nice poem!

You should make a song borrowing the music from Pete Seeger's "Little Boxes":



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Fri Aug 21st, 2009 at 03:09:36 AM EST
[ Parent ]
Here are both index series in the logarithmic plot. I multiplied the SP500 values by 4.4 to bring the graphs closer.

The graphs are pretty parallel. SP grew even faster before 1987.

by das monde on Fri Aug 21st, 2009 at 04:01:36 AM EST
[ Parent ]
Yes, I think this nails the coffin of the DJIA actually: the US economy was really growing 1960-1975. The S&P picked up this growth, not the DJIA. Around 1980, we had two parallel effects: a secular boom in equities that boosted the S&P, and also the beginning of "management" of DJIA so that it performs at least as well as S&P.

Post dot-com crash, the engineering becomes blatant: DJIA hung near flat when S&P crashed (they both had a dip on 9/11 though, you can't rebalance the index faster than airplanes crashing). And when S&P picked up, it just returned to dot-com bubble level. DJIA actually went higher !

Pierre

by Pierre on Fri Aug 21st, 2009 at 04:56:22 AM EST
[ Parent ]
Does this mean that the 1960s were not fantastic times for the biggest multinational companies, but rather good democratic times for mid-size companies? How much does the 1990s growth reflect the increased participation of pension funds? If large institutional investors tend to bet on "super" super-companies of the DJIA list, that may explain its "better" peak performance.

In this crisis, many people need more money, but a lot of money are wondering without a purpose. Somehow the financial system is not moving money from points A where it is to points B where it is needed (contrary to what one Rothschild likes to say). Instead, aimless money is making problems of its own.

by das monde on Mon Aug 24th, 2009 at 07:04:16 AM EST
[ Parent ]
It only means that the components were not updated enough in this period:

http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average

Updates in 1939, 56, 59, 76: it sucks...
Then 3 updates in the 80's, 3 in the 90's
And of course, already 5 updates in this decades, and counting...

In the 80-90, all stocks were free-riding the secular trend of retirement funds going for a gambit. But in most cases, their target benchmark was very broad, at least S&P500 or Russell2000

Pierre

by Pierre on Mon Aug 24th, 2009 at 10:42:19 AM EST
[ Parent ]
Kolmogorov bubbles ?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sat Aug 22nd, 2009 at 05:52:27 PM EST
[ Parent ]
Kolmogorov bubbles
Eh? Chto eto takoe?

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Wed Sep 2nd, 2009 at 02:32:50 AM EST
[ Parent ]
Kolmogorov did some seminal work on the scaling properties of turbulent flow.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Wed Sep 2nd, 2009 at 04:49:47 AM EST
[ Parent ]
One can only guess how much fun he'd have had in the world of financial mathematics... but that field was a bit beyond what he was allowed to dabble in.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Sep 2nd, 2009 at 09:59:30 AM EST
[ Parent ]
Shiryaev is a good example of what may be expected, though...

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Wed Sep 2nd, 2009 at 07:34:14 PM EST
[ Parent ]
bubbles don't melt down, they burst...  they require a lot of surface tension to remain stable, and failure is invariably catastrophic

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 1st, 2009 at 07:53:30 AM EST
[ Parent ]

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