Does History Repeat, Rhyme or Just Have Coincidences?

This week the following graph from
has been annotated by the author to highlight similarities of the current era for stocks to a corporate earnings pattern traced out nearly a century ago.

Annotation by John B. Lounsbury     August 20, 2010

The time scale of the current era (right hand oval) is compressed relative to that of a century ago, but the occurrence of extremes displays a remarkable similarity in pattern with events 1-4 from 1907 to 1921.  It is tempting to project that the rest of the pattern could repeat, but I refer you back to the title question.  Perhaps the replication of events 1-4 is as far as the current pattern will go.  Or perhaps the pattern replication is pure coincidence.

I am not aware of the data source for the graph above since the S&P 500 has only a 60 year existence.  Data before 1950 must be created by simulation.  The most widely recognized simulation has been constructed by Prof. Robert Shiller, Yale University and this may well be the data used.

The pattern of graph in the 1920s and early 1930s implies that the collapse of earning in 1921 might have resulted from structural economic problems that were insufficiently addressed in the years that followed, resulting in the subsequent economic breakdown from 1929-32.  One economic occurrence of the 1920s was the concentration of income and wealth in the hands of a few.  This is a phenomenon that has occurred again over the last 10-20 years and appears to still be in progress.

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