Mr Market's Descent Into Madness

It was back in April 2019 that I first noted a worrying development in the stock market. Starting from late 2017, the stock market has produced new all time highs as well as new lows. A 5 year chart of the S&P illustrates this clearly. This pattern is in turn inside a similar pattern that started back in 1980, with peeks in 2000, 2007 and (yet to be confirmed) 2021, and bottoms in 2002 and 2009.

If we extend the short term pattern, we find an expected low at 2100. That's down a whopping 40% from the current high of 3800. A bounce can be expected at around 2100, but the long term pattern tells us that this bounce might be short lived, only high enough to complete a head and shoulder pattern, after which S&P will go to its long term target of 600, down a stunning 80%.

The patterns we're seeing both short term and long term indicates instability. When seen in mechanical systems, such patterns indicate imminent collapse. In psychology, we'd term it deteriorating manic depressed behaviour. Mr Market looks mentally ill. There's a real danger that he may end up with a serious depression from which he will only recover very slowly.

Considering that Mr Market is a collective that reflects the mental state of society as a whole, we can conclude that things must be getting seriously weird out in the world. The trumpet-like shape of the short and long term S&P charts indicate mental instability at a massive scale, with people going from manic to depressed and back again within months, and with this madness becoming increasingly severe over time.

Looking back in time, we can ask ourselves whether this may be at least partially correct. Have things become increasingly strange since the 1980s? I'd say that it has. There was little in the way of hysteria back in the 80s. There was no scare related to man made global warming. There were no lockdowns. There was little magic thinking in which riches can be made from nothing. There was no crypto, no negative interest rates, no trillion dollar rescue packages. All of this, and a lot more like it, have come about since then. Mr Market is descending into madness because society as a whole is descending into madness.

By Dan Aasland - Flickr, CC BY-SA 2.0, Link