Capital flows into US stocks likely misinterpreted by both the experts and public hide troublesome global trends (chart 2).
Chart 1: NYSE Composite
Chart 2: Dow Jones Transports (DJTA) and US American Railroad Stocks Prior 1914, DJTA to Dow Industrials (DJTADJIAR) and DJTADJIAR Cycle Z Scores (DJTAC3and4)
- The Cycle of Accumulation and Distribution is also recognized in Dow Theory
- Capital, flowing from Transports to Industrials since 1901, pushed the Dow Transport to Dow Industrial ratio to extreme negative concentration years ahead of the 1929 crash. Capital's extreme concentration and tendency to flow from areas of high to low concentration, forced a reversal of flows in 1938. The invisible hand has ignited another global recovery.
- Capital flowed from the Industrials to Transports for decades. By 1985-1990, the ratio return to levels not seen since the early stages of the Great Depression.
- After 1985-1990 capital flows reversed again. The Dow Tranports to Dow Industrials ratio and global economy have been slowly contracting ever since. This downward trend and extremely high sovereign debt burdens setup not only the Great Depression but also the global unrest of the 1930's and 1940's. The invisible hand is warning investors and leaders around the world again.
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