Cosmic Laws in Finance?

A friend of mine has a blog called The Economics of Cosmic Law. He discusses how things are deeper than the media would have you believe - that if you cared to open your eyes, you'd 'find out how far the rabit hole really goes...'

http://financialdiscussion.blogspot.com/

Turn on the headlines today and you will hear about Euro federalisation, Quantitative Easing, CDOs, ABSs, MBSs, ETFs, ECNs, the VIX... and on and on. Yet this is the surface. You have to go deeper. Whereas most things become more complex the further you go, finance becomes easier. The complexity is a shield for the industry. If everyone knew Quantitative Easing meant 'devaluing YOUR money to balance MY checkbook,' people might not be so complacent.

Which brings me to Law #1: The market is a zero-sum game.

Somebody wins and somebody loses. All financial transactions must obey this law:

    Media Hype                                  Winner(s)                                              Loser(s)
Euro Federalisation         Lazy, Indebted Nations' Taxpayers                German & French Taxpayers
                                                     German Exporters                    General Sovereignty - (UKIP!)
                                                     Euro Bureaucracy 
             
Quantitative Easing                             Central Banks                                           Savers
                                                          Governments                                              

Whilst the Zero-Sum Game is fairly well-known, another economic law which doesn't get enough credence is that of proportionality - specifically, the proportionality of booms and busts in the business cycle.

Boom/Bust Ratio


Regardless of political plans or economic forecasts, Booms seem to last in proportion to busts. The Dow Jones Industrial Averages show this in detail:

The Average Phase in the Business Cycle is 18 years. 2017 is wishful thinking!

1929 - 1949: 20 years (Great Depression, WWII)
1949 - 1966: 17 years (Recovery, Economic 'Miracles')
1966 - 1982: 16 years (Stagflation, Vietnam)
1982 - 2000: 18 years (Internet Boom, Cold War drives Innovation)
2000 - ????: ~12 years (Terrorism, Mismanaged Wars, Subprime Crisis, Sovereign Debt)

You might be thinking to yourself: 'The bust years seem to be OK for the stock market (Forgetting the Great  Depression) - they look like straight lines!' This is because heavy inflation has manipulated the chart: check this out:


     A New Perspective: The 70s look a lot worse now, don't they! (Fred's Intelligent Bear Site)

This blog is not intended to scare you, just to inform you, to offer a different view. The government would never produce the forecast '2017 will be the beginning of a new growth era!' It's always next year, provided you vote for them.

That's it for this week's blog. My next blog will answer the question: 'What do bees, flowers and fingers have to do with financial markets?'