Parabola Hyperbole
As we close the books on May, the S&P 500 has a two-month gain of nearly eight percent. We have offered reasons for investors to expect this advance to continue, although we certainly cannot vouch for the pace.
With increasing frequency we are seeing comments that the U.S. market gains are "parabolic" or sometimes "straight up." We will not cite specific references to those using these terms, but if you watch for them, you will see what we mean.
Terminology often has a strong symbolic content. It may be designed to express emotion or to convince readers of something that may not stand on facts alone. At "A Dash" we have noted the pervasive use of negative symbols in discussing the stock market, and sometimes offered alternatives.
Parabolas
We strongly suspect three things about parabolas and those following the stock market:
- Even the really smart people who are following the market carefully do not remember enough geometry to define a parabola, or to write the mathematical equation. You can check your own definition here.
- These same folks cannot draw a parabola.
- Everyone knows that parabolic growth is some unsustainable pace. Parabolas precede bubbles and crashes. That is the source of the symbolism.
The figure below shows a parabola of the simplest form, where Y=aX^2. 
The increase in values on the right side of the chart has that unsustainable exponential quality. You can see more images of parabolas at Wikipedia.
Parabolic Growth and Stocks
When the Shanghai Composite declined over 6% before Thursday’s U.S. trading, there was plenty of discussion about whether this had a significant bearing on the prospects for U.S. stocks. Some suggested that both markets were "parabolic." Now that we understand what this means in factual –not emotional — terms, a simple chart is worth many words.
The wise investor or trader is not swayed by emotional language and symbols.
A little light-hearted something that I came across on another blog:
http://fon.gs/apocaholics/
Thanks, RB.
Great fun — and worth thinking about!
Jeff
I think what they are trying to go for is the concept of something that is increasing at an increasing rate that is rapid at present. That is not the present market, but it might describe the market in 1927-8, or the liquidity fueled Nikkei in the late 80s, or even the NASDAQ from late 1998 to early 2000.
Parabolic conditions are rare; we are not there now.
Presenting steady growth as unsustainable ‘parabolic’ growth might be as simple as changing the x axis (time) to suit.
I think the doomsayer business is really the place to be – it seems to attract more attention than the Pollyanna place and thus more ad revenue. Also the doomsayer books outsell the Pollyanna books – well – parabollically.
But after all the chuckling and chortling is over something real did happen in 2000 to cause the market to go down. And while none of the doomsayers really knew why or necessarily even predicted it – the meltdown still happened. It was real to millions and millions of people, and many of those are absolutely convinced today that had they “read the right book” in the 90’s they wouldn’t have lost half or more of their money. Consequently many of those folks are now looking for the prophet – the one seer who will lead them boldly from the “coming apocalypse”.
You can’t predict tops nor bottoms and you can only recognize them in the rear view mirror and no two are alike – but the average ‘merican is not going to believe that for an instant. And, in fact, many above average ‘mericans don’t believe that for an instant. Hence the rise of money managers since 2000 – that phenomenon is a result of “bad things that happened”.
Now both the average and above average ‘merican can go to bed at night and sleep tight because he/she knows that he/she has someone else to blame.