"I can at least promise the coming weeks will be exciting- at least as exciting as market watching gets."
I continue to stand by the things I shared in that post and recommend a re-read. For now, let me provide a little market history and perspective from the proprietary research at SFP.
Coincidentally, today is the one year anniversary of the top of the market and we're down 41%. How bad is it? It's pretty bad, frankly. Since 1928 there have been 12 bona-fide recessions excluding the current one. On average the stock market declines 28% due to recessions. Only 4 of 12 recessions coincided with market declines greater than 30%. Of those really bad bear markets, the loss did not exceed 45% except during the Depression (-83% from 1929 to 1932 and the 1937-38 bear market of 50%). Take a look how the current episode compares:
The S&P 500 is now down 38% so far in 2008 (as of today's close). See how this stacks up on a calendar year basis:
Yes that's right- we are only one more bad trading day away from the worst calendar year on record including during the Depression. I told you it was bad. In fact, the S&P 500 is down 24% since I made that 9/15/08 post and down 22% in the 7 trading days this month so far. No wonder I'm putting in 15-16 hour days.
Way back in 1929, the great crash began on Black Monday, October 28th and after trading on Black Tuesday, October 29th the Dow had lost 23% of its value. It took us seven trading days, what then took two. I think it is fair to say we just had a "cascading crash".
Lest you think I am calling a bottom, consider that the price-to-earnings ratio, a measure of value, remains about 17.5 compared to the long-term average of 15.8 (the lower the ratio, the more attractive stocks are; More on that in a future post.) Many bear markets (but certainly not all) have ended when P/E ratios dipped into the single digits. In fact, back in miserable 'ol '29, the Dow had fallen some 40% as of November 11th from its high in September, which was the peak. Our current peak was exactly one year ago today and we're down 41%. Ouch.
This may sound like a dumb question, but if the numbers are so bad, and pretty much equivalent with '29, then why do I still have a job, and not living in a tent in Central Park? And don't say it's because I don't live in NY.
ReplyDeleteIs my perception of the 29 crash, and the depression, too simplistic? Did things not go bad overnight? Do we have more of an economic 'safety net' now?
i second jonnyeh's question and eagerly wait to hear any answers on this.
ReplyDeleteObviously I don't know what your perception of the 29 crash is, but the short answer is that in 29, the stock market was the equivalent of today's mortgage market. It was stocks that were levered and when the stock bubble popped it immediately rippled through banks (there was no separation between investment, commercial and retail banks at the time). It is the housing/mortgage market that caused the problem this time and it has been rippling through slower since it did not pop in just two days- home prices fall over quarters, not days. This time stocks are the symptom, not the cause.
ReplyDeleteThats why you still have a job. More importantly, will you have a job in a few months? That I don't know. It depends on the industry, government response and the reaction of people and businesses everywhere. Frankly, I am more optimistic than most, yet at this point I'm not sure that is warranted.
i get this odd feeling of security as i look around my apt. and see my xbox 360, big screen tv, my cars in the garage, computers, etc. i get this strange sense of security as i just can't get myself to fathom sitting in a soup bowl line while at the same time having more than my humanistic share of luxuries at home. now i know this comment is shotgunned with logical fallacies, but i think at the heart of it it seems like we (and other countries) have pumped the US nation full of assets and resources (albeit many unnecessary ones like my gadgets) and that that richness of "crap" has somehow set us much much further away from the '29 generation (which i innocently imagine as generally owning only that which is close to their basic needs).
ReplyDeleteto further explain: look in your kids' (or a nearby kid's) rooms. way overboard on the toys, etc. compare this to what it was like even in the 80's (yes even i can taste the logical fallacies seething through my teeth once again). but what i mean is that the US has been such a consumer, "buy buy buy", "gottahavit", "holiday junkie" "shop-til-you-drop" nation that we've stored up a plethora of this junk (and other real assets) and that all may somehow convert into having more than enough of our needs if we were to go through a 10 year depression. somehow that's gotta set us apart from the '29 depression, right? am i even making sense?
i guess really it comes down to looking at one's personal savings, their assets, job skills, and future continued job opportunities to see how one would really fare compared to the '29 era depression.
to end, i'll add what "my perception of the 29 crash was": some stock traders jumping out of windows, cars on cinder blocks for lack of money to maintain or drive them, soup lines and unemployment for many many americans.
thanks for the input, it's hard to publicly display the sad extent to my ignorance but i find this blog interesting and respect your opinions.
markii, I'm not sure if your comment (#4 above) is a question or not, but I do think your observation about having lots of "stuff" is accurate. Yet let me try to put that in perspective. The '29 generation had lots of stuff the generation before didn't have- electricity, telephones, radios, cars! Credit availability was relatively new for consumers too. At the time, much of this stuff was deemed unnecessary, nonessential- a luxury. If you look back hundreds of years, you can almost always say one generation had a lot more than the previous generation. This fact does not of course mean anything by itself though except that as societies become more modern and wealthy, we have more stuff.
ReplyDeleteI do think consumption in America has outpaced incomes for some time now (at least a decade) and it is time to revert to the mean. Many luxuries, whimsical spending, $4 coffees and the buy now, pay later concept is going to drain away for the time being. I expect a new emphasis on thrift and savings which will ultimately be a good thing. This is the ebb and flow of human consumption- irrational at times, but eventually constrained (or enabled!) by reality.