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Old 01-26-2016, 10:23 AM   #21
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Maybe it is different this time?
What really would be different this time is experiencing two Great Depression sized financial panics within a single decade.
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Old 01-26-2016, 10:31 AM   #22
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Originally Posted by Gone4Good View Post
What really would be different this time is experiencing two Great Depression sized financial panics within a single decade.
Uh huh. How soon we forget.

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The Great Depression had devastating effects in countries both rich and poor. Personal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25% and in some countries rose as high as 33%. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most.
https://en.wikipedia.org/wiki/Great_Depression
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Old 01-26-2016, 11:20 AM   #23
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Oooooooh! Spooky charts are spooky!

In unrelated news, did you know that fractal noise sources are both unpredictable, and exhibit self-similarity on different scales?

Spooky!



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Old 01-26-2016, 02:15 PM   #24
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What really would be different this time is experiencing two Great Depression sized financial panics within a single decade.

2000 and 2008 don't count...right ?
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Old 01-26-2016, 02:21 PM   #25
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Maybe, but would oil, gold, copper, steel, iron, etc. all have the same deflationary spiral at the same time?
Most of them did from 1980-2000.

Hey, I'm worried about deflation too, I just don't think commodities are the place to focus. Wages are the place to focus. If commodities go down, but we have strong employment and increases in real wages, that would be fine with me.

Lately, we've had decent employment gains, but wages have been muted because we are still digging out of the hole dug during the Great Recession.

Hopefully the weakness abroad doesn't derail the recovery.
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Old 01-26-2016, 02:22 PM   #26
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2000 and 2008 don't count...right ?
There have been some good posts and links since the OP. Why not make your case that shows why 2016 is like 1932.
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Old 01-26-2016, 02:24 PM   #27
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Maybe, but would oil, gold, copper, steel, iron, etc. all have the same deflationary spiral at the same time?
Is the decline in commodity prices deflation or just a return to long term trend price?


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Old 01-26-2016, 02:26 PM   #28
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2000 and 2008 don't count...right ?
2000 doesn't. That was a pretty run of the mill bubble/recession.
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Old 01-26-2016, 02:30 PM   #29
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2000 and 2008 don't count...right ?
The tech bubble was not a financial panic, so no 2000 doesn't count.

A financial panic includes a run on the financial system, so 2008 counts but a garden variety bubble popping (tech stocks, gold, oil, etc) does not.

The difference is important because a financial panic has the capacity to cause a Great Depression, whereas some other market collapse that doesn't endanger the banking system does not.
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Old 01-26-2016, 02:46 PM   #30
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Is the decline in commodity prices deflation or just a return to long term trend price?
I realize that most pricing returns to trend. However, most of the initial commodity price spike was due to demand. Copper, steel, oil, aluminum, etc. was actually being used, not hoarded.

Now the demand has fallen and prices have followed. If it was increased supply, such as in oil, it makes sense. Copper prices should be stabilized and not falling.

The Baltic Dry index is also down. That is a huge indicator of demand.

So, in answer to your question, give me 10 years, and I will have the right answer.
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Old 01-26-2016, 02:51 PM   #31
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The tech bubble was not a financial panic, so no 2000 doesn't count.

A financial panic includes a run on the financial system, so 2008 counts but a garden variety bubble popping (tech stocks, gold, oil, etc) does not.

The difference is important because a financial panic has the capacity to cause a Great Depression, whereas some other market collapse that doesn't endanger the banking system does not.
What about the S&L crisis of the 80s and 90s? Or the Asian financial crisis.

https://en.wikipedia.org/wiki/Savings_and_loan_crisis

There will always be one crisis or another. Running for the hills might seem like a great idea, but is likely the incorrect response.
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Old 01-26-2016, 03:06 PM   #32
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What about the S&L crisis of the 80s and 90s? Or the Asian financial crisis.

https://en.wikipedia.org/wiki/Savings_and_loan_crisis

There will always be one crisis or another. Running for the hills might seem like a great idea, but is likely the incorrect response.
No and no. The Asian financial crisis may qualify . . . for Asia. But it didn't threaten our banking system. And neither did the failure of 1,000 or so nickle and dime S&Ls all of which were resolved under existing deposit insurance mechanisms. Where was the panic?

But rather than argue the semantics of every other market hiccup that also doesn't qualify as a financial panic since the last one in the 20's, I'll just bump MichaelB's request to bring the conversation back to the original topic.

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There have been some good posts and links since the OP. Why not make your case that shows why 2016 is like 1932.
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Old 01-26-2016, 03:52 PM   #33
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Can I add this post here too for market perspective? I originally posted this on the More Worried About Markets Now Than Any Time Since 2009 thread.

Here is an article I think gives a good perspective on how to look at markets. It is a far more nuanced view than that pushed by the traditional panting finance media, and IMO far more accurate.
What Does the Market Know? by Howard Marks of Oaktree
I'm on his mailing list. I agree, this is an excellent, well balanced article.

Ha
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Old 01-26-2016, 03:57 PM   #34
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Maybe, but would oil, gold, copper, steel, iron, etc. all have the same deflationary spiral at the same time?
Who knows about gold, but the other things you mention all have experienced a lot of new mine development to try to meet Chinese demand surging. Now we have those quality mines, and China has slowed down. Mines once built tend to be kept in production. Since mothballing a mine is a very big deal, a good mine will normally produce even if it is not quite making variable costs.

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Old 01-26-2016, 05:13 PM   #35
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Can I add this post here too for market perspective? I originally posted this on the More Worried About Markets Now Than Any Time Since 2009 thread.

Here is an article I think gives a good perspective on how to look at markets. It is a far more nuanced view than that pushed by the traditional panting finance media, and IMO far more accurate.
What Does the Market Know? by Howard Marks of Oaktree
Very good article. Thank you for that. The article seems to capture reality as I see it.
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Old 01-26-2016, 05:37 PM   #36
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For an idea of what it was like in the 1930's read this excellant book:
The Great Depression: A Diary

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When the stock market crashed in 1929, Benjamin Roth was a young lawyer in Youngstown, Ohio. After he began to grasp the magnitude of what had happened to American economic life, he decided to set down his impressions in his diary.
Benjamin Roth was an investor and an astute observer. Also some discussion about real estate.

Have we been through anything like the 1930's? I think not. When the market went through another downturn in 1937, unemployment was something like 15%. And in those days the 2 income households were few in number.
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Old 01-27-2016, 04:57 AM   #37
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There have been some good posts and links since the OP. Why not make your case that shows why 2016 is like 1932.

After long and protracted market fall of greater than 50 percent, global growth and equity returns recover and then fall again and for the ensuing following decade remain anemic growing just at the rate of inflation or less. Fed overly priming the pump causing asset bubble and then raising rates too quickly while rest of world falters resulting in prematurely choking out global recovery and growth resulting in not reaching collective economic escape velocity for a couple of decades.

That was 1929-1932. And then 1932-1940...

That was also 2008-2014.... And now 2015-2016 YTD

The 1932 playbook will call for political and economic turmoil caused by election and protectionist measures. Real wages will stagnate or move negative. Commodities will crash. Deflation will reign supreme for a decade. Some economies will totally collapse.

I'm not a market historian. I can draw parallels but I suppose anyone can do that and make it feels like the third or fourth inning of the same playbook.

Seeking perspectives.
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Old 01-27-2016, 06:15 AM   #38
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I am not suggesting a parallel here either, but 1932 was the time to buy stocks. The market put in it's lowest mark in the last 100 years. Sentiment is generally an inverse indicator.
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Old 01-27-2016, 06:51 AM   #39
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Fed overly priming the pump causing asset bubble and then raising rates too quickly while rest of world falters resulting in prematurely choking out global recovery and growth resulting in not reaching collective economic escape velocity for a couple of decades.
I think the fed rate raises increases will be a big killer. There is no inflation. Wages are relatively flat. CEO pay has increased, but the average hourly earnings for an average worker, is flat. The rates increases are a bonus for the banks.

When you have a 1% deflation, and a 2% fed funds rate, it is a 3% real interest rate. That 2% is the target for the next 12 months or so. It is a tightening of the money supply, which reduces output and limits investment.

Tax rates were also raised in that era, as they have been recently.

Excess economic capacity was in that time frame, as it is today. We have a huge labor surplus in the world and the USA. Some of it is structural, some of it is a natural product of our society.

I do not think we have an exact correlation between now and the years around 1932, but there are many similarities.

Of course, we have better mechanisms now to defeat a bad economy. We can cancel all US debt with a stroke of a pen. In the 1930s, dollars were backed by gold.
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Old 01-27-2016, 07:51 AM   #40
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That was also 2008-2014.... And now 2015-2016 YTD
Perhaps part of the confusion is that the title of your post should have been "Is this Market Like 1937." That makes more sense to me, keeping in mind that the aftermath of 2008/2009 was nothing like that of 1928/29 because the response by government's world wide was much, much better.

We do, surprisingly enough, learn from history (well, at least institutions like the Fed do.)

Which also leads us to the reasonable possibility that the Fed will not blindly keep tightening monetary policy in the face of all evidence in 2016 and beyond. Thus far they've raised rates by 0.0025 and are not honor bound to raise any more. Futures markets have dramatically cut the odds of another Fed increase.

If inflation continues to be a no-show and the labor market softens, I'd say the Fed tightening will be "one and done."
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