Scenario for next week '87 or '29?

[shotgunner]

I never thought I would hear in my lifetime any serious talk of 1929 unfolding again yet Cramer threw that scenario out as a possibility on his show last night 10/10.

He also believed that a worse case scenario has the DOW at 6000 by end of trading on Tuesday.

He was advising people to come back into the market with a quarter of the 20% he said to take off the top both Monday and Tuesday.

He seemed to indicate the 1929 scenario as the least likely but he went to talk about the difference now from 1987 and commented the 1987 scenario is Bullish at the moment.

 

[audreyh1]

I've read several articles that seem to think we are in 1938, and that 1999 was really 1929.
FT.com / Markets / The long view - Heed the harsh lessons of history to find value

I think the only implication is that the stock market only grew 5% over the next decade.


Audrey

 

[ziggy29]

II think the only implication is that the stock market only grew 5% over the next decade.

If that doesn't included dividends, that's not bad, because in 1938 the S&P was yielding on the order of 5-6%. Indeed, reinvested dividends make the entire decade of the 1930s quite a bit less horrible in the extreme.

We don't quite have that now, but there are a lot of solid companies out there now with dividend yields well north of 3%. Even 5% in nominal Dow/S&P gains would mean about 8% return. Not great compared to history, but not too shabby either...

 

[plex]

All that matters is whether stocks are better than any other general investment category in the long run. Which they were, even in the Great Depression.

If someone has a short term horizon for a significant portion of their assets, it is very understandable for them to seek safety for the portion of their assets they need to keep safe for the short-term.

But for anything that is long-term, it is ridiculous how people keep jumping to the conclusion that stocks are bad. The numbers simply do not support anything else.

 

[audreyh1]

If that doesn't included dividends, that's not bad, because in 1938 the S&P was yielding on the order of 5-6%. Indeed, reinvested dividends make the entire decade of the 1930s quite a bit less horrible in the extreme.

The exact quote is:

We are not, therefore, in a new 1929. Our position is more similar to that of the late 1930s. That is not so encouraging: in the decade after October 10 1938, the S&P gained 5 per cent.

Maybe that implies dividends not included - not sure. Since I haven't seen a chart of Oct 1938 to Oct 1948 I have no clue.

Audrey

 

[dex]

A couple of points:
We are in uncharted territories now. I look at a technical analysis board where people are usually berating one another for being a perma bear or bull - it is silent.

I'm getting a little bored with all these comparisons with the depression. The economy of the USA was in trouble before the bubble burst. And only got worse - unemployment 25%, deflation 25%, the dust bowl.

Even the way money was invested between the 30's and now is different - then relatively few individual people into individual stocks/bonds. Relatively many individuals, pension funds, sovereign funds, mutual funds
There is $3.5 trillion in money market funds that people will want to put to work.
http://www.usatoday.com/money/perfi/basics/2008-09-16-damage_N.htm

A bear market like this one is like a tornado- it confuses us (Cramer doesn't know what he is talking about; he's guessing) - it wipes everything away - investing philosophies; gurus . I read an article today that said when the "buy and holders" capitulate we will be at the bottom.

It will get worse - higher unemployment - made even worse by the news media, personnel debt and people haven't been through a general recession in a long time.

I don't know what is going to happen. I think that there can be more downside, a couple of quick rallies (some sell into and others short) & some more steep declines then a slow recovery.

So, how about it - can we stop the 30's comparisons?

 

[al_bundy]

i read an economist's opinion a few days ago that this is more like 1873 than 1929. The 1873 depression was a lot worse.

either way if the world governments don't step in we are pretty close to going to an ATM or a store checkout and none of our cards working or a bank failing and you can't get money out for a while. and most of the banks in the world collpasing

 

[Notmuchlonger]

i read an economist's opinion a few days ago that this is more like 1873 than 1929. The 1873 depression was a lot worse.

either way if the world governments don't step in we are pretty close to going to an ATM or a store checkout and none of our cards working or a bank failing and you can't get money out for a while. and most of the banks in the world collpasing

Well instead of talking stock markets. Shouldn't we be going over the proper ammunition and survival gear to outlast these bad times? Like the proper weapon to defend yourself in your compound by the hordes of starving masses?


I read World War Z a few months ago maybe Ill re-read to get some pointers.

 

[Khan]

Well instead of talking stock markets. Shouldn't we be going over the proper ammunition and survival gear to outlast these bad times? Like the proper weapon to defend yourself in your compound by the hordes of starving masses?


I read World War Z a few months ago maybe Ill re-read to get some pointers.

I'm getting too old for this ^&*(.

 

[clifp]

I'm getting too old for this ^&*(.

I'm pretty sure that Khan was no spring chicken when he went up against Capt. Kirk and company

 

[audreyh1]

I'm pretty sure that Khan was no spring chicken when he went up against Capt. Kirk and company

No, but he still looked good! LOL!

(That was the second time Khan went up against Capt. Kirk BTW - there was an original TV episode - same actors.)

Best start trek movie ever! - an one reason was it was a perfect sequel to the original TV episode.

Audrey

 

[Gone4Good]

either way if the world governments don't step in we are pretty close to going to an ATM or a store checkout and none of our cards working or a bank failing and you can't get money out for a while. and most of the banks in the world collpasing

But the world's governments have been stepping in, and very aggressively too. This could have turned in to a depression but I'm pretty confident it won't happen. The world's government's are throwing money at this crisis and pumping liquidity into the system. That is very, very, very, very, very (add many more veries . . . ) different from the response to the crash of 29.

That isn't to say we won't go through a nasty recession. Earnings will decline, unemployment will go up, etc. etc. But also remember that the stock market is a discounting mechanism. As bad as you think the future will be, the market is discounting that fear in today's prices. For stocks to continue to decline over the long-term, the future has to be worse yet then most people fear. That is a tall order.

 

[audreyh1]

I agree. A big arsenal of tools has been brought out. Countries are willing to cooperate. All hands are on deck. No, this won't be fixed overnight, but I think we can avoid a depression.

Audrey

 

[Moemg]

I'm getting too old for this ^&*(.

Remember you still have the SS option !

 

[Bimmerbill]

I'm stockpiling ammo. Its expensive now. Will pick up a couple NATO caliber rifles shortly. I've been selling some of my less used firearms and get the same amount of $ I bought them with. Of course $800 10 years ago was worth more than $800 now...

 

[Running_Man]

A couple of points:
We are in uncharted territories now. I look at a technical analysis board where people are usually berating one another for being a perma bear or bull - it is silent.

I'm getting a little bored with all these comparisons with the depression. The economy of the USA was in trouble before the bubble burst. And only got worse - unemployment 25%, deflation 25%, the dust bowl.

Even the way money was invested between the 30's and now is different - then relatively few individual people into individual stocks/bonds. Relatively many individuals, pension funds, sovereign funds, mutual funds
There is $3.5 trillion in money market funds that people will want to put to work.
Reserve Primary money market fund breaks a buck - USATODAY.com

A bear market like this one is like a tornado- it confuses us (Cramer doesn't know what he is talking about; he's guessing) - it wipes everything away - investing philosophies; gurus . I read an article today that said when the "buy and holders" capitulate we will be at the bottom.

It will get worse - higher unemployment - made even worse by the news media, personnel debt and people haven't been through a general recession in a long time.

I don't know what is going to happen. I think that there can be more downside, a couple of quick rallies (some sell into and others short) & some more steep declines then a slow recovery.

So, how about it - can we stop the 30's comparisons?

Dex, I like your posts, I agree with your thought process

 

[Meadbh]

Headlines like this are not helping to restore calm

Financial system on brink of meltdown - IMF - The Irish Times - Sat, Oct 11, 2008

Finance ministers face down crisis as IMF head warns of ‘meltdown’

At this point I wonder if it's time for a market holiday until clear heads prevail.

 

[dex]

I'm stockpiling ammo. Its expensive now. Will pick up a couple NATO caliber rifles shortly. I've been selling some of my less used firearms and get the same amount of $ I bought them with. Of course $800 10 years ago was worth more than $800 now...

AMMOMAN.COM d/b/a Discount Distributors

 

[W2R]

At this point I wonder if it's time for a market holiday until clear heads prevail.

Maybe it's just me, but now that I have had a chance to catch my breath I am rapidly regaining confidence in the market. I find myself wishing that I had bought more last week, and planning to buy next week. My panic is giving way to greed.

I do think that a market holiday for several days would be a good idea, if we are below 6000 when the NYSE closes on Tuesday.

 

[Gotadimple]

I just watched a Fareed Zakaria interview with George Soros (CNN). Interesting perspective he has on the better (not perfect) solution. Fundamentally,

* the markets are in capitulation
* markets are not perfect because they are social instruments subject to political influence
* no one can call the bottom
* government investing in banks (rather than buying bad debt) is a better solution as it encourages loan-making
* restructuring the underlying mortgages reduces the total loss to a bank, i.e. they lose more if they allow the homeowner to go into default than if they restructure loans to 85% of market value and take the resulting loss
* between investing in banks and restructuring loans, more loan $ would be available to new homeowners, strengthening the housing market.

I imagine there will be a summary on his website.

-- Rita

 

[al_bundy]

But the world's governments have been stepping in, and very aggressively too. This could have turned in to a depression but I'm pretty confident it won't happen. The world's government's are throwing money at this crisis and pumping liquidity into the system. That is very, very, very, very, very (add many more veries . . . ) different from the response to the crash of 29.

That isn't to say we won't go through a nasty recession. Earnings will decline, unemployment will go up, etc. etc. But also remember that the stock market is a discounting mechanism. As bad as you think the future will be, the market is discounting that fear in today's prices. For stocks to continue to decline over the long-term, the future has to be worse yet then most people fear. That is a tall order.

everyone is saying severe recession by the stock market drop, but no one mentions that all the banks were as leveraged as in 1973 and 2000 and that the PE of the SP500 was higher than it's historical mean.

so we suddenly get a few weeks where everyone knows earnings will either come down in 2008 and 2009 due to higher credit costs, some public companies will go under or there is no earnings visibility at all. combine it with the Lehman CDS auction and you get an ugly week that scares everyone.

the banks and commodities are probably dead money for at least a few years. everything else may not be that bad especially if the governments take the right action. similar happened in the late 1980's. banks were dead until 1995 and commodities crashed after the war. but the cheaper housing prices and cheaper commodities put extra cash into people's pockets.

people also talk about the trade deficit and how we'll have to cut back and whatever. what they forget to mention is most of the trade deficit was oil and we'll be drilling domestically now and with cheaper gas prices coming the trade deficit will fall.

 

[harley]

people also talk about the trade deficit and how we'll have to cut back and whatever. what they forget to mention is most of the trade deficit was oil and we'll be drilling domestically now and with cheaper gas prices coming the trade deficit will fall.

If that's what it will take we're looking at a 20 year recession. Do you have any data to back up the assertion that most of our trade deficit is oil? I was under the impression it was only about 20% or so of it.

 

[al_bundy]

Trade Deficit Shrunk in June - washingtonpost.com


for the rest of the deficit, it's not like it was 100 years ago