SHOOT: Right now economists and experts are trying to decide which direction the market is heading? Up or down?
If you're a regular reader of SHOOT you know the answer is that we are going on a downward trend, in a step by step fashion. This is based on fundamental conundrums in the market, from evaporating credit, to reduced energy supply, to the combined forces of inflation, deflation and stagflation. The latter is due to artificial Money Supply interventions such printing money. Printing money is not a substitute for wealth, unfortunately. Thinking that is equivalent to thinking what happens in the movies is real. It's not. We may blip upwards here and there, but make no mistake, the overall trend is downhill. Everyone wants to believe otherwise, but wishing and reality are often quite different. I say this knowing full well, that on the same day, Bernaqnke has said:
Bernanke says recession 'very likely over'
SHOOT: Bernanke is wrong, so is almost everybody else.
In the past six months, Aaron and I have talked a lot about the similarity between the rally of early 1930 and the one we're having today.
The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929. The spring rally took the market up nearly 50% again, to a level that was only about 20% below the previous peak.
That rally, of course, was also the biggest sucker's rally in history. After the market peaked in April 1930, it crashed again, eventually ending up down 89% from the 1929 high and more than 80% from the 1930 high. The market did not reach the 1930 high again for another quarter of a century.
Our current rally came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%). It has taken the market up more than 50% from the low. Our current rally has also lasted slightly longer than the 1930 rally did.
Today's rally, of course, may actually be the start of a great new bull market, one that will climb the "wall of worry" back toward the previous record highs. On the other hand, it may yet also be another version of what happened in 1930.
We won't know for sure what today's market is until we look at it with the genius of 20/20 hindsight. As yet another reminder of how similar the patterns up to this point have been, check out this excellent compilation of New York Times clippings from early 1930 put together by Dan Alpert of Westwood Capital.
Dan's complete compilation is contained in a broader research piece, which is embedded at the end. The slides below contain excerpts from February-April, 1930:
NOTE: Last week’s estimates that steel production for the country at large was averaging 75 per cent of capacity, as against an average of 59 in December, seemed to guarantee a considerably larger total steel output this month than in December. The point was made, both in Wall Street and in trade circles, that this represented unusually prompt recovery.
No comments:
Post a Comment