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Old 01-27-2016, 07:53 AM   #41
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I think the fed rate raises [plural?] will be a big killer.
See above response to papadad111
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Old 01-27-2016, 08:54 AM   #42
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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."

Well. I did mean 1932..... In that There was a pronounced market crash. 1929. A recovery, 1930-1931 and then another crash. 1932. To whit:

"Who could have predicted it... It is worth noting that the 1932 stock market crash is deemed to be the worst in the 20th century and not the one in 1929. By mid-1930, the market was up 30% from the trough of the 1929 crash. However, by the summer of 1932, the Dow reached a low of just 11% of its high in 1929, or a loss of roughly 89%, trading more than 50% below the low it had reached on October 29th, 1929. If one had $1000 on September 3rd 1929, it would have gone down to $108 by July 8th, 1932 -- end of the worst crash -- or an 89.2% loss. To recover from such a loss, one would have to watch one's portfolio go up by 825%!"
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Old 01-27-2016, 08:56 AM   #43
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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.
Volatility was incrediblly high in 1932, nothing like we have seen in today's markets.

I could show some data if anyone requests it.
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Old 01-27-2016, 08:57 AM   #44
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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.
Just a couple of points.

Audrey1 gave a link to an excellent essay by Howard Marks. You should read it.

There are strong parallels to the 1930's, but only if you ignore all the facts that are not common. Such as two world wars and a great depression.

There was a banking panic in 1930 and another in 2008. In 1930 there were systemic bank failures where both investors and depositors lost everything, This led to a global depression where aggregate demand contracted by more than 20%. In 2008 the panic was not systemic, bank failures were absorbed, investors lost but depositors were made whole. This led to a recession where there was a slight contraction in global demand, a larger contraction in the US.

Equity market values reflect corporate profitability, bond values reflect risk of default. For the markets to decline sharply, investors fear that either bonds will not be redeemed or profits will disappear. That was a reality in 1930, and a fear in 2008.

There is no similar fear in the bond markets today, and fear of rising rates is totally different from fear of mass default.

There might be a fear in the equity markets that profits may not rise enough to justify higher asset prices, but there is also no mainstream evidence to suggest that system-wide profitability is in any way threatened.
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Old 01-27-2016, 09:29 AM   #45
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There's also this vague 40 year cycle. The 1890's, the 1930's, the 1970's, the 2010's.

It will work out. The thing about ER is you hope you are not the down-line on the firecalc front page. But I guess that is what firecalc helps you assess.
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Old 01-27-2016, 01:40 PM   #46
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Volatility was incrediblly high in 1932, nothing like we have seen in today's markets.

I could show some data if anyone requests it.
Would someone please request the data because I would like to see it.
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Old 01-27-2016, 03:39 PM   #47
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Michael B. Good post. You forgot to mention the incompetent fed ... Oh wait. That's both then and now ... Strike that.
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Old 01-27-2016, 03:43 PM   #48
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Michael B. Good post. You forgot to mention the incompetent fed ... Oh wait. That's both then and now ... Strike that.
I couldn't disagree more. Fed monetary action in 2008 prevented that banking collapse from turning into something more similar to the 1930's. It has been quite effective.

Is this a serious discussion? It seems a bit trollish...
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Old 01-27-2016, 03:50 PM   #49
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Jokes aside. The counterparty risk is less transparent today with global connectedness. Much more risk of contagion today than during the GD.

Fascinating - sitting where we are today ... In 2016 And sitting at 1932 as a comparison...no one then knew there would be another world war and that is what it would take to lift us from the depression. Hindsight is 20-20.

In fact. Headlines were quite the contrary. All this happened despite assurances from prominent government and business leaders of-the-time that the worst was behind.

. September 1929: “There is no cause to worry. The high tide of prosperity will continue.” - Andrew W Mellon, US Secretary of the Treasury

After the stock market crash in October 1929, the Dow Jones Industrial Average (DJIA) partially recovered in November-December 1929 and early 1930.

Reassuring headlines such as the following became increasingly common:

. May 1, 1930: “I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity!” – US President Hoover

. August 29, 1930: “American labour may now look to the future with confidence.” – James J Davis, US Secretary of Labour

. October 16, 1930: “Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment.” – Charles M Schwab.

On July 8th, 1932 the Dow reached its lowest level of the 20th century and did not return to pre-1929 levels until 23rd November, 1954. The full impact was not felt until the next year. By 1933, the Great Depression was very real and it would take more than 22 years before the market would regain what had been lost.


After the crash in 1932, not 1929:

1. The Securities and Exchange Commission (SEC) was established;

2. The US Congress passed the Glass-Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds and other securities;

3. The Federal Deposit Insurance Corporation (FDIC) was established to insure individual bank accounts for up to $100,000; and

4. Works Projects Administration (WPA), the largest New Deal agency, was set up employing millions to carry out public works projects.

However, while FDR's New Deal did help restore the GDP to its 1929 level and did introduce basic banking and welfare reforms, FDR refused to run up the government deficits that ending the depression required. Only when the federal government imposed rationing, recruited 6 million defence workers (including women and African Americans), drafted 6 million soldiers, and ran massive deficits to fight World War II did the Great Depression finally end.

The extent of the economic devastation of the 1930s went far beyond the imagination of anyone in the financial markets or governments across the world.
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Is this market like 1932 ?
Old 01-27-2016, 03:51 PM   #50
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Is this market like 1932 ?

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I couldn't disagree more. Fed monetary action in 2008 prevented that banking collapse from turning into something more similar to the 1930's. It has been quite effective.

Is this a serious discussion? It seems a bit trollish...

Trolling. Are u kidding me ? It's As serious as cancer ... The fed did well in 2008. Now, however, I question their actions. The fed did not exist until 1932 and was incompetent then to fix the economy too.
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Old 01-27-2016, 03:55 PM   #51
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Jokes aside. The counterparty risk is less transparent today with global connectedness. Much more risk of contagion today than during the GD.

Fascinating - sitting where we are today ... In 2016 And sitting at 1932 as a comparison...no one then knew there would be another world war and that is what it would take to lift us from the depression. Hindsight is 20-20.
How does this lead to the conclusion that 2016 is like the 1930's?
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Old 01-27-2016, 04:05 PM   #52
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I'm not sure it leads to any conclusion.

The original question which I posed, was whether or not that is the case.

It's open for discussion and debate by the forum.
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Old 01-27-2016, 04:09 PM   #53
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Well. I did mean 1932..... In that There was a pronounced market crash. 1929. A recovery, 1930-1931 and then another crash. 1932.
Um, OK, if you say so. But just so we're on the same page, this is what the market did from 1924-1940 according to data published by Robert Shiller. I'm not sure where you got that paragraph about a big recovery and then a crash in 1932, but I'm not seeing it. (his data is here . . . http://www.econ.yale.edu/~shiller/data.htm )

When drawing parallels between now and the 30's most economists I've read site the premature tightening of the Fed around 1937 that knee-capped the recovery. You can see the S&P 500 sell off at that time. 1932 meanwhile was the ultimate bottom of the market.
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Old 01-27-2016, 04:11 PM   #54
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I'm not sure it leads to any conclusion.

The original question which I posed, was whether or not that is the case.

It's open for discussion and debate by the forum.
My misunderstanding. I though you were suggesting that the current situation was leading to a 1930's type outcome. By the responses so far, it seems no one, including you, thinks that is happening. Good thing, eh?

Senator has raised some important issues about deflation and slower growth. A different scenario and outcome, though.
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Old 01-27-2016, 07:46 PM   #55
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The fed did not exist until 1932 and was incompetent then to fix the economy too.
No soup for you!

Federal Reserve founded 12/23/1913

https://www.google.com/?gws_rd=ssl#q...eserve+founded
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Old 01-27-2016, 08:47 PM   #56
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For the doom and gloomers, here's former Treasury Secretary Larry Summer's downside economic scenario. This comes from a Council of Foreign Relations round-table held the other day on Economic & Political Risks in 2016.

Enjoy

Quote:
HAASS: When you say serious economic downturn, what is it—what would that look like?

SUMMERS: So I’m going to answer the question, but I don’t want anybody to confuse my answering the question what would serious economic downturn look like with my predicting that there will be such a serious economic downturn. I said one in three of a recession. By the way, if the Fed actually carries through with four increases this year, then I think it’s probably closer to one in two of a recession. But I don’t think they—but I don’t think they will, which is why I’m predicting one in three.

But what does it—what does it look like? The confidence in China starts to deteriorate. As in some—as in February, they have to spend $250 billion holding the currency, and people calculate that at that rate the reserves will all be gone in a year, so they can’t do it. And then they have to spend $350 billion in March or they can’t do it, so at some point they give—at some point they give up. The currency falls 15 percent, 20 percent, exporting huge pressure—deflationary pressure to the rest of the world and leading to a major switch in demand towards China. In that process, the price of oil falls to a point where the world is glutted with it and it has to be stored on tankers, which is enormously expensive, and so the price falls below $20. There’s a revision in sentiment about the global economy in the United States, and so stock market investors decide that the price-earnings ratio on the U.S. market, instead of being at the 85th percentile of history, should be at the 25th percentile of history, and at the same time corporate profits fall by 20 percent. And those two things are sufficient to take the Dow to 8,500. The—

HAASS: Can I withdraw the question now? (Laughter.)

SUMMERS: But I’m saying, I don’t expect any—I don’t expect any of that. But just think about the last—think about the last thing I said. Is it—it’s not—it’s not at all what I would predict, but it is not beyond the realm of possibility that multiples in U.S. markets would start to look like a significantly below-average level rather than a significantly above-average level. And it’s not beyond the realm of possibility that, in a troubled global economy, profits would fall 15 or 20 percent. And then the rest of it is arithmetic. And, you know, by the way, I think we’ve done a great deal to make financial institutions more robust, but if you take a scenario of the kind that I just described, there would at least be some questions about some major global financial institutions.

Again, that’s not my prediction, but it is why I think those who are worried about overheating the economy and generating inflation, rather than being worried about slowdown, low-flation, and difficulty of response, are sort of entirely missing the central issue of our time, from an economic point of view.
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Is this market like 1932 ?
Old 01-28-2016, 12:36 PM   #57
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Is this market like 1932 ?

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No soup for you!

Federal Reserve founded 12/23/1913

https://www.google.com/?gws_rd=ssl#q...eserve+founded

My error. SEC was founded in '32

It was Glass-Steagal in '33 and the banking act of 1935 that changed the structure of the fed significantly that I was thinking about : http://www.federalreservehistory.org.../DetailView/26

The issue that inspired the broadest debate was the structure, powers, and functions of the Federal Reserve System. This issue was the focus of the portion of the act known as Title II, Amendments to the Federal Reserve Act. This portion expanded the powers of the Federal Reserve; shifted power from the regional reserve banks to the Board based in Washington, DC; clarified and codified the relationship between the Federal Reserve and the executive and legislative branches of the federal government; and reorganized the Federal Reserve’s leadership structure.
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Old 03-12-2016, 06:08 AM   #58
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After looking at that chart...The dog and I buried all our investments in the back yard. Is it time to dig it up, now?

I just thought I would revive this thread with a little sarcasm. The sky is falling sells magazines.
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Old 03-12-2016, 06:45 AM   #59
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OTOH, in 1932 my grandfather was able to buy a foreclosed 6 bedroom oceanfront home for $12,000.

Problem/Opportunity
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Old 03-12-2016, 06:52 AM   #60
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OTOH, in 1932 my grandfather was able to buy a foreclosed 6 bedroom oceanfront home for $12,000.
. . . but only earned about $1,000 per year.
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