The 1929 Meme – Don’t Believe It

I like to run comparison charts, that this is 1987, or 2007, or 1937, etc., that often get passed around on the Internet. Some have plausibility due to similar historical and economic conditions – 1937 for example matches 2015 if we analogize the 1915-1919 auto bubble to the tech bubble of 1994-99, and then the credit bubble of 1925-29 to the recent housing bubble of 2004-08. In that case the crash of 1929 matches the crash of 2008. The attempt to reflate the economy in 1933-37 due to revaluing gold would be analogized to the Fed’s QE from 2010-now, attempting to keep interest rates low to reflate the economy. Plausible, maybe.

Most of these comparisons, however, are simply eye-candy, pattern matching of little predictive power. Some are simply bogus. Here is one of a high level of bogosity:

This comes from a seemingly credible source, Tom McClellan of the McClellan Market Report, and it was brought to his attention by well-known chart diviner, Tom Demark. The bogosity is in the two axes: the 1929 axis covers a 100% range, from 200 to 400 (right axis), whereas the current Dow covers a relatively minor 25% range, from 12400 to 15600 (left axis). On a fair comparison (100% to 100%), the red chart should be only 1/4th the slope of the 1929 chart, and wouldn’t match it at all. It would show a much more anemic rise, meaning it would be much less likely to have a dramatic fall.

Don’t believe it. Whatever correction we are in is not the big one.

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