Remembering the Seventies…

Last December we wrote an article Dow Deja Vu. We noted in that what we may be seeing is an exact replay of what occurred throughout the 1970s – Stagnation. Here is a chart compliments of Crestmont Research.

Many investors were suckered into believing that the 1965 bear market had finished and that the new highs in the Dow symbolized a great buying opportunities. P/E ratios were reasonable, volatility was low and investors were just forgetting what they thinking a few short years earlier.

This resulted in one of the worst secular bear markets the DJIA saw in its history. It is also worthy to note that in the late 1960s inflation was relatively under control. Today, we have a group of stocks that, when adjusted for inflation still stand well below their all-time highs. Relative to gold, again similar just about every bear market since 1900, has been outperforming the Dow by a strong margin.

I would therefore caution, with just as much and maybe more enthusiasm than before, that a serious decline in the market seems imminent. And for the record, the Dow usually reflects 75% of the shares on the overall market. Stay tuned!

Tags: Economy, Stocks