Most people who analyze the present give too little thought to the past, even when previous decades or centuries offer acutely relevant information.
This is particularly true in the financial world, where short attention spans are chronic. A Sept. 9 article in The Economist magazine put it this way:
"The financial world seems to be obsessed with the short term. Fund managers are usually judged on their performance over a three-month period. The television news highlights daily moves in stock markets. Lots of hedge funds think in terms of milliseconds."
But would you be surprised to learn that long-term stock market trends are generally easier to forecast than short-term ones? EWI's Robert Prechter says just that, and explains why on pp. 403-404 of his landmark book, The Wave Principle of Human Social Behavior:
"...contrary to all current views on the subject, it is the long-term social trends, the ones that chaos scientists say are impossible to predict, that are in fact easier to predict... The reason that long-term trends are easier to forecast is that there are much more data to apply in one’s analysis of form (such as breadth, volume, sentiment and behavioral statistics...) as well as a higher component of accuracy in...aggregate stock prices.
"In fact, they are highly predictable in both general and probabilistic terms and somewhat predictable in specific terms. What is more, these facts pertain regardless of the time scale, as clarity of pattern is the prime determinant of predictability."
Let's take a look at long-term stock market prices:
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Not even Major League Baseball can rival the stock market's wealth of statistical data. And after studying the relevant data and analyzing the long-term pattern, Prechter offered this conclusion in the May issue of The Elliott Wave Theorist: "The current bear market will be the biggest in nearly 300 years."
Yes, Britain's "South Sea Bubble" in the early 1720s was the last time a bear market was comparable to what we may see unfolding now -- it's represented by that vertical drop which you see on the above chart.