In my last post, I offered the following chart showing S&P 500 bull market complacency after epic economic disasters.
Click to enlarge.
The following chart shows the period after the Great Depression (using the DJIA in place of the S&P 500).
Click to enlarge.
Note that there was no calm period immediately following the Great Depression. Other than that, the charts are pretty much the same. Few could see the crash of 1937 coming (or World War II shortly thereafter). As seen in the chart, complacency had fully set in (just like it has now).
In summary, it would seem that the 3rd and 4th years after epic investment disasters are periods of great complacency. Perhaps investors assume that the worst is behind us and a whole new era of economic prosperity will soon unfold? If history is a guide, that could not be further from the truth. Serious "unexpected" risks lurk in the 5th year. I would even be so bold to argue that serious "unexpected" risks lurk every time complacency sets in. The popular saying is not, "Hope for the best, plan for the best." That's got optimistic disaster written all over it. (No sarcasm intended.)
For what it is worth:
1. The Great Recession was an epic economic disaster.
2. In its aftermath, we have just experienced two years of great complacency.
3. We're just about to enter the 5th year yet again.
Can we make it a full year without any further economic pain? I have serious doubts. I continue to stand by my prediction that the next recession will hit by October of 2014 (made in 2012). I just don't see much reason to change my mind, especially now that job growth is slowing again and few seem to notice. Sigh.
This is not investment advice.
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