The Current NYSE Bull Run
Let me introduce myself. I have been publicly predicting stock market trends and commodity movements since the 1997 Asian Financial Crisis.
President Trump why do you claim the current Bull Run is of your doing? The American economy has a huge amount of inertia and takes time to respond to policies. It is like a huge ship, for example a supertanker. When one decides to turn a supertanker it may not respond for some time. In fact it would carry on in the same direction for a few miles before you can see it turn. Please do note that if the big boys make a lot of noise or news about a policy or a stock or commodity there will be a short term response to the news which may last for a few days after that the markets will move their own way.
The mathematical equation of markets
Remember my equation that describes market movements? Here it is:-
M(z) = W(z) + I(z) + N(z) ----- equation 1
M(z) is the market behavior
W(z) is the wave component
I(z) is the inflationary component
N(z) is the news or noise component which is normally tiny compared to the other two components.
Every market, whether it is the real economy, the stock market, the commodity market or forex consist of all three components. In order to understand long term trends one needs to determine how large each component is. For the American stock exchange I believe that the inflationary component is the predominant component. This means that one can buy some shares and hang on to them for a few years for inflation to increase the price of the stocks and then sell them to gain a profit.
The Bubble Economy
Unfortunately, an inflationary market has some dangers in that it can crash overnight when investors and speculators cannot afford to buy anymore. This occurs when there is a speculative bubble. Almost everyone goes 'mad' trying to get rich as quickly as possible within a few minutes or days or weeks as the prices keep climbing out of control. When this occurs the market will suddenly turn and crash when no one can afford the final exorbitant price of shares at the peak of the trend. Remember the tulip mania when prices went vertically up leading to the February 1637 collapse. People were selling their houses to buy a tulip. That was real madness and there is more such madness to come, remember the USA housing bubble of 2008? So when will the next bubble occur?
Demand & Supply Equation
I had derived another mathematical equation to show the relationship between Demand, Supply and Inflation when I was explaining to the American government and President Barack Obama back in 2010 or 2011. The equation is as follows:-
D - S = kI ----- equation 2
D is Demand
S is Supply
I is inflation
And k is a constant
The Demand Supply equation shows that as Demand increases Inflation increases. If Demand is less than Supply we have Deflation because inflation becomes negative.
Having said this let us look at the NYSE and DJI charts.
DOW JONES Industrial Average Index
I have shown how the Dow Jones Industrial Average has moved from 1985. The data is from https://finance.yahoo.com/quote/%5EDJI/history?period1=473356800&period2=1515686400&interval=1mo&filter=history&frequency=1mo
One can observe that from DJI 1985 to 2007 the inflationary rate was 9.72% and after the crash of 2008, the Great Recession, the inflationary rate increased to 12%. What do you think that the average person will do with the Dow Jones at record highs? Would he put money in the bank for 3% ROI or in the stock market for 12% ROI?
One will also notice that the current 9 year Bull Run began in February 2009 and based upon my initial predictions, will carry on for another 4 years until 2022 if it does not crash before then. Mr. President Trump you can observe that the third part of this Bull Run began in February 2016, one year before you were elected into office.
NYSE composite index chart
I have shown how the NYSE Composite Index has moved from 1985. The data is from https://finance.yahoo.com/quote/%5ENYA/history?period1=473356800&period2=1515686400&interval=1mo&filter=history&frequency=1mo
One can observe that from NYSE 1985 to 2007 the inflationary rate was 7.44% and after the crash of 2008, the Great Recession, the inflationary rate increased to 10.32%. Do you think that the average person will put money in the bank for 3% ROI or in the stock market for 10.32% ROI?
One will also notice that the current 9 year Bull Run began in February 2009 and based upon my initial predictions, will carry on for another 3 years until 2021 if it does not crash before then. Mr. President Trump you can observe that the third part of this Bull Run began in February 2016 one year before you were elected into office.
Forecasting the future trend of this Bull Run
I had spent many years developing an alternative theory of economics based upon probability theory and wave theory to predict market movements 2 to 4 years into the future. Having said that let me show you my predictions of the DJI and the NYSE.
DJI forecast chart
There is a strong upward trend as the DJI has broken the ceiling in 2017 and climbed further. The price trend appears to begin to move vertically upward as the NYSE is reaching record highs. There is a potential for the upward trend to fail during the period of May to October 2018. A further point of failure of this upward trend is towards the end of 2021 or 2022.
NYSE forecast chart
I had done some predictions of the NYSE in 2013 and for commodities earlier. Some of them were a little off in that the events occured earlier or later then predicted but the general shape of the trend appeared to be realistic. I am trying to improve on my forecasting techniques but I believe that many speculators, after reading my charts try their very best to go against the predictions.
If we look at the NYSE forecast we will see similar predictions to the DJI forecast.
There is a strong upward trend in the NYSE composite index chart but it has not broken the ceiling as of January 2018. The price trend appears to begin to move vertically upward resulting in record highs. Unfortunately, there is a potential for the upward trend to fail during the period of May to October 2018. A further point of failure of this upward trend is towards early of 2021.
The danger of a high rate of inflation
Remember my equation above on rate of inflation formula, equation 2.
D - S = kI ----- equation 2
The larger the demand the greater the inflation. This is because either there are more sellers who are holding on a little longer to gain more profits so the value of S decreases or there are more buyers entering the market, so the value of D increases. That is there are more buyers who are willing to pay a higher price for the shares. Where does the money come from to buy these more expensive share?
The danger of a high inflationary pressure in the stock market is that many people will try to speculate to earn some quick returns when the price trend goes vertical because it becomes very much easier to get rich. There is nothing wrong with that - most of the time. Unfortunately, when the buying frenzy gets crowded you will mostly likely see a slowdown in the real economy. This is because money will be diverted from the real economy, from goods and services, to the stock market for quick profits. This in turn, may result in an economic slowdown or recession and even a stock market crash. Watch where the money is flowing.
Mr. President Trump, you did remove all the safety checks that were introduced during your predecessor's time, didn't you?
This article was researched and written by Dr. Peter Achutha, 15th January 2018