Sunday
Great Depression, Stock Market CrashComparison of Bear Markets: 1929 vs 1937 vs 1976 vs 1987 vs 2000 vs Current Bear Market Charts
Whilst we do not believe the past will predict the future, here is a chart showing all previous bear markets in the history of the Dow since 1929. We plotted all recessions and compared it with the current.
- 1929-1933 (Great Depression)
- 1937
- 1976
- 1987
- 2000 (dot com bear market)
- 2007 (current bear market)
If we had to pick a precedent to guide where the Dow will head in the next few years, we would be using the Nikkei as our guide. With all the money printing and the Feds readiness to do everything and anything it takes to avert a 1929 scenario, we feel that it is less likely for the 1929 scenario to play out. Of course, this is not based on much - just the assumption that all the money printing will eventually provide some support for equity markets. Whilst there are many differences between Japan’s economic policy in 1989 and the US now, the “bail all” policy which refuses to let the less efficient fall will most likely in our view result in a protracted side-way move/decline. Bear in mind also that the Nikkei rallied more than the Dow immediately prior to the 1989 crash.
How Is The Current Bear Market Tracking Compared to Previous Bear Markets?
Chart 1: Dow Bear Markets Comparison 1929 vs 1937 vs 1976 vs 1987 vs 2000 vs Current (Click to Enlarge)
- www.theinflationist.com
- In every other bear market (except 1929), there is significant upside from here. (At the time of writing the Dow is at 8700)
- If one were to believe that a 1929 Great Depression scenario is playing out, then markets will need to fall (hard) soon
- Most bear markets form double bottoms (or close to it) - few make a V-shape recovery so shorts will usually be given a second chance to get out
Our Preferred Precedent: Nikkei 1989 Crash vs Current Bear Market Comparison (3-Year Chart)
www.theinflationist.com
- The current DJI decline have surprisingly tracked the Nikkei relatively closely! (shift the Current decline to the left by about 90-100 days and it would almost fit perfectly)
- If we believe in the Nikkei story, there is some short term upside to go - if one were to shift the Dow left, we could recover up to -30% mark, followed by more downside. Without shifting the chart, we are looking at a short term upside of 5% followed by further downside
- Upside estimate (with left shift): 9570 (+10% from current 8700)
- Upside estimate (without left shift): 9130 (+5% from current 8700) - our preferred scenario
- Downside target (without left shift): 5000-5200 by first half 2010 (in 6-8 months)
Big Picture: Nikkei 1989 Crash vs Current Bear Market Comparison Chart (12 Year Chart)
www.theinflationist.com
- “Great Depression” averted with Bail Outs, but the price to pay is a protracted sideway movement/decline over the next decade
- Whatever your view is, we have presented all major declines in the history of DJIA and compared it with the current for your easy reference. We are unsure where markets will go, but we find it hard to believe the Dow recovering all of its losses so quickly ie end of recession. We are unlikely to get out of all the years of excesses so quickly and easily.
- Whilst the Nikkei has been declining steadily over the last 12-13 years, the Dow has been making higher highs in the same period. We suspect the next decade will see the Dow ‘wander’ aimlessly sideways whilst China possibly making higher highs.
We hope this helps you in your trades. Feel free to comment. We are also open to expanding this analysis if there are other declines for comparison.
Post Tags: 1937 Crash Chart, 1976 Crash Chart, 2000 Dot Com Crash Chart, Comparison of Nikkey 1989 Crash and Current Crash, Great Depression, Historical Bear Markets, Nikkei 1989 Crash Chart
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Dec 6, 2009
Reply
Here’s something to think about. The nation doing the “money printing” as you call it, is no secondary player. Rather it is big daddy U.S.A. willfully making itself extraordinarily vulnerable for the sake of maintaining the viability of those relatively shorter-term (and, indeed, entirely transient) gains it has enjoyed for several decades now playing the globalization game. While its industry was dismantled, its financial sector went on a profligate orgy of “innovation” manufacturing exotic credit securities leveraged with more winking and smiling than you can shake a stick at. If you think Treasury debt got out of hand over the interim, your eye is off the ball because the volume of credit securities manufactured on Wall Street — securities whose hedging absolutely required such increase of government debt as we have witnessed — dwarfs by considerably more than an order of magnitude all outstanding U.S. public debt. It is this mountain of mis-priced risk Uncle Sam has stepped in and overtly backed. And it is this same mountain threatening to destroy the creditworthiness of the U.S. Treasury. Hence profound concern raised by the risk of sovereign debt default precipitated by the collapse of Dubai World.
The most frightful matter of fact simply is that, various private interests now possess capacity to effectively blackmail this once great nation, having hooked us like a bunch of heroin junkies to the joys of quick riches to be had on the upside, while threatening to take away the candy (unless certain extortions are honored) when capacity to manufacture sugar becomes exhausted (much as occurred 2007-2008). Yet even more troublesome, though, is that the United States remains a Constitutional Republic. Thus, capacity of private interests to extort concessions from the American taxpayer is bound to reach a limit before the electorate explodes in a fit of rage dwarfing the over 100-1 opposition to last year’s TARP swindle. And therein lies the rub. The riskiest of financial assets — equities — could be drained so fast to make 2008’s swoon look like a ride on a tortoise when, say, another big, blank, bailout check from Treasury is not forthcoming (pick your bankrupt enterprise; there are dozens still being kept alive on artificial life support).
It seems many in the bear camp tend to underestimate the possibility utter destruction of equity values could sweep upon the scene like a tsunami. I hope you don’t mind me pointing this out.
Dec 6, 2009
Reply
Hi Tom
Thank you for sharing your comments and insight. I have toned down my bearishness in my posts for fear of bias thanks to my shorts - but i totally agree with you. Looking at the Dow, it can fall ALOT more and yet be in an uptrend. http://theinflationist.com/technical-analysis/1984-2009-chronological-analysis-of-dow-jones-and-nikkei-225
Are there any particular companies on your radar that you are short on?
Dec 6, 2009
Reply
No particular companies; rather inverse ETFs shorting indexes. I’ve been building a position since late-May … and getting crushed. However, technical basis for holding this position continues building, so even if I am incorrect supposing collapse lies ahead, some retest of March ‘09 lows remains rather likely.