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Special Update: The Cheech & Chong Stock Market Indicator


With concert dates scheduled through at least February 2009, the Cheech & Chong Stock Market Indicator is telling us the end of this bear market is at least several months away.


August 12, 2008, a date which will forever live in infamy, for that was the date I discovered and first made public the stunning relationship between the career arcs of the comedic dope-smoking duo Cheech & Chong and economic devastation. What is this relationship? Simply put, I discovered that the popularity of Cheech & Chong is inversely correlated to the movement of the United States stock market. In other words, the more popular Cheech & Chong are, the less popular stocks are.

To understand how this relationship developed we must go back to 1981. Yes, 1981. That marked the beginning of President Ronald Reagan's modern "War on Drugs," which seemed like a good idea at the time; that is, until more and more kids realized the tremendous syntactical blunder involved. It wasn't, literally, a war on drugs; as in, a war fought while taking drugs. Had anyone in the White House at that time bothered to consult a grammar book, they would have immediately realized their mistake and moved to rename it the War Against Drugs. Live and learn.

In addition to kicking off the Modern "War On (i.e. Against) Drugs," 1981 also marked the conclusion of the active years of pothead comedians Cheech & Chong. The two events are closely related. As America entered the Reagan years, potheads turned increasingly unfunny, possibly due to the widespread use by law enforcement authorities of the herbicide Paraquat. At the time, many of us believed that smoking pot that had been treated with Paraquat could result in severe respiratory distress and possible death. Which was true, but beside the point. The point is that pot was increasingly turning unfunny.

As well, social mood, eager to embrace a couple of loveable stoners during the structural bear market of the late 1960s and throughout the 1970s, was shifting.

Now, a little more than three months since I first publicly warned of the Cheech & Chong Stock Market Indicator, let's review this indicator's record and see if it is forecasting a conclusion to this grim bear market.

The chart below illustrates how the indicator worked throughout the most active period for Cheech & Chong, 1965 to 1981.

S&P 500 (SPX, SPY) 1965-1981

Click to enlarge

Cheech & Chong were most active between the years 1971 and 1981, the heart of the last structural bear market, releasing just one minor album thereafter: 1985's Get Out of My Room. In 1987, they followed up with a movie of the same name, after which they immediately broke up. They thereby inadvertently rescued the stock market from the crash of 1987 and a potentially deep and protracted bear market.

The feuding duo refused to appear together until 2002, when they released a greatest hits package; this incidentally coincided with the heart of the first US stock market deflation scare. Fortunately for investors, Tommy Chong's sideline business, Chong's Bongs, was raided in February 2003, preventing a reunion and once again rescuing markets from a sustained bear market.

S&P 500 (SPX, SPY) 1981-Present

Click to enlarge

The chart below is an update of how the indicator has performed since August 8, 2008, when Cheech & Chong Reunion Tour tickets went on sale. Clearly, this resurgance in pot comedy popularity has been devastating for the stock market. Since August 8, the stock market is down a disastrous 37%.

After a mind-numbing move of that magnitude, I would love to say that the Cheech & Chong indicator is finally forecasting a bottom for stocks. But no. These guys keep adding dates! They've got a concert film in the works. Creeping Jesus, they were actually roasted on television last Sunday night by Martha Stewart and Wilmer Valderrama! Where will it end?

With concert dates scheduled through at least February 2009, the Cheech & Chong Stock Market Indicator is telling us the end of this bear market is at least several months away.

Click to Enlarge

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