When I conduct market predicative analytics, I use four branches of science: complexity theory, Bayes’ rule, behavioral psychology and history. None of these disciplines is widely used on Wall Street, which seems wedded to obsolete methods such as value at risk, efficient-markets hypothesis and the normal distribution of market moves as reflected in the bell curve.
Of the four scientific methods I use, history is the most difficult to quantify and therefore the most overlooked by analysts. But history may be the most powerful analytic tool of all because human nature has not changed significantly throughout the course of civilization.
Almost every form of collective social and political behavior that plays out on the historical stage has happened before in some form. There is truly nothing new under the sun.
This article is a good reminder of the power of historical analysis in understanding contemporary developments. The author takes a close look at the similarities between events leading up to the stock market crash of 1929 and events unfolding today. Such patterns are never the same twice, but strong similarities do provide ample warning.
The Federal Reserve was the primary cause of the stock market crash of 1929. The Fed may be engaged in a repeat performance today.
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