On the heels of another record breaking week for the Dow, legend Art Cashin just issued a dire warning.
Eric King: “When you look at the stock market, Art, we keep hitting one record high after another on the Dow. As the market continues to melt-up, do you sometimes step back and say, ‘I’ve seen this movie before and it doesn’t always have a good ending?’”
Art Cashin: “Well, it’s funny you say that. I wrote in my comments yesterday about the fact that the Dow being up nine consecutive record closes has only happened five times since 1897. And in virtually all of those cases it didn’t end well. It didn’t end badly immediately after the streak was broken but a year or so later there were problems. The most recent time we’ve seen it they had 12 records in a row in early 1987, (laughter) and we all have some scars from what happened later in 1987. It also happened in 1929.
King World News note: Here is the brief written portion that Cashin is referring to:
Is The Past Prologue? Maybe We Should Hope Not – The ever vigilant Jason Goepfert at SentimenTrader combed his prodigious files to see how many times the Dow closed at record highs for nine straight days. Here’s what he discovered:
“The Dow climbed to its 9th straight record. Going back to 1897, the index has accomplished such a feat only 5 other times. The momentum persisted in the months ahead every time, with impressive returns. But when it ended, it led to 2 crashes, 1 bear market and 1 stretch of choppiness.”
The five instances were 1927; 1929; 1955; 1964 and 1987.
Here’s how Jason summed up his review:
“Like many instances of massive momentum, however, when it stopped, it stopped hard. Two of them led up to the crash in 1929, one to the crash in 1987, one to the extended bear markets of the 1960- 1970s and the other a period of extended choppy price action. So a little something for everyone there.”
Art Cashin continues: “I think, Eric, it shows a kind of sense of euphoria and that is why it’s a concern. For a market to do something like that only five times in well over 100 years tells you it’s a somewhat rare event. And as I said, it is because it takes a great deal of euphoria to get there.”
Eric King: “Art I wanted to ask you about manipulation of markets. I remember one time you saying something to the effect that you have had been in this business for over half a century and you’ve done everything you can to hone and refine your craft to give you an edge over the next guy in these markets. But there was some frustration there because you seemed to be indicating that there was some (unnatural) interference in the markets. When you look at markets now and you see central banks are buying stocks, which we now understand might be part of this melt-up, and you see a removal of the human element that was in these markets prior to that time, do you ask yourself where this journey leads us? Banks have also recently confessed to manipulations of multiple markets and so it’s no longer a conspiracy theory. What are your thoughts when you step back and look at that big picture from where you were in your career 50 years, 40 years, 20 years ago, to today?”
Art Cashin: “Well, as you say, it’s completely different. With governments openly openly ‘going in to guide markets,’ that makes them less efficient. They could be preparing for surprises they don’t know are coming. A classic case is one of the most respected central banks in the world is the central bank of Switzerland. Yet they have gone out to try to defend the Swiss franc from rising too readily and it has cost them billions and billions of dollars.
“Nobody Is Bigger Than The Market”
Nobody is bigger than the market. That’s what frightens me is when people think they are and they come in and distort a market enough, what happens when the rubber band snaps and things change? I’m a much bigger fan of normally free markets. It’s like an honest poker game, if you are at the table and someone is not playing honestly it distorts everything that’s going on.”