Caught Speeding


The graph to the right shows four different decades Compounded Annual Growth Rates (CAGR) after record setting decades. The graph starts with the date of the record-setting decade, and then shows the following decade returns with a rolling ten-year CAGR calculated weekly.

The first record-setting decade occured from 1896-1906, when the DOW returned 12.4%. The next decade on the graph shows by 1916 the decade long returns from 1906-1916 were nil.

The next record came in August 1929 when the 1919-1929 CAGR hit 14.0%. By 1939, the decade CAGR was close to double-digit negative returns.

It took thirty years for the 1929 record to be broken. In 1959, the DOW achieved a decade long CAGR of 14.6%. The 1959-1969 decade roared on, but by the end of the following decade returns had dwindled to a hair over 3% CAGR.

The span between records continued to increase as it took nearly forty years for the 1959 record to fall. In May of 1998 the decade CAGR reached new heights at 16.7%. As we are currently in the final year of the following decade, CAGR has dropped below 6% and is tracking very close to the 1959-1969 returns. For that reason, in May of 2007, I used the 1969 CAGR (the final year of the decade) and applied them to 1997-1998 prices to project the May 2007-2008 prices.

The graph to the left shows the projected DOW in blue and how it's actually tracking since May in orange. The projections would call for a record 14500 DOW in the next two weeks, followed by a 20% correction.

It's unlikely that the 1969-decade-long CAGR's will call every turn in the road; but the general direction seems highly reasonable (to me).

You can't speed for too long without breakdowns.