Wednesday, February 19, 2014

Parabolic Growth: Not Sustainable (Musical Tribute)

The following chart shows the annual growth in the S&P 500 Index divided by the annual growth in retail sales (excluding food services). I offer two data sets. One starts at 2004:Q1 (in black) and the other starts at 2010:Q2 (in blue). A parabolic trend line has been added for each series.

Click to enlarge.

Note that both parabolic trends are nearly identical. So much for the "fool me once shame on you, fool me twice shame on me" theory to investing.

We are currently seeing each 1% of retail sales growth turn into 6% in S&P 500 Index growth (a 6-1 leverage ratio), just like we were heading into the Great Recession. That is not the most disturbing part though. It's how we got here and where investors seem to think we're headed.

Parabolic Growth: Not Sustainable

Extreme ways are back again
Extreme places I didn't know
I broke everything new again
Everything that I'd owned

The future's so bright I gotta snipe hunt.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

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