Ignoring the lessons of 1929, Market crash ahead?

[RTO]

The similarities of the lead-up to the great market crash to today's economic environment are obvious. Don't say you weren't warned.


The economic and financial landscape of 2007 bears striking similarities to 1929. Back then, there were large, unregulated pool operators and other insiders constantly muscling the tape in whatever direction they chose. The public, too, was involved, thinking the country was experiencing a new era. Meanwhile, business began deteriorating in the spring of 1929, though the partying in stocks lasted until the fall.

'Only Yesterday'
To give you a flavor of those times, I'd like to quote from Frederick Lewis Allen's "Only Yesterday," which is one of my favorite books about 1929: "Mergers of industrial corporations and of banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expenses and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. (My emphasis.) And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected -- until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue rights not without a canny eye to their own speculative fortunes."

Obviously, I don't need to point out how similar that is to the practices we are seeing today.

Giant footprints of the funds
Today, too, there are pool operators, in the form of leveraged-buyout (LBO) and hedge funds, both of which borrow money to invest. And, just like their predecessors, who ignored macroeconomic and corporate deterioration, they are partying as never before. In reading the following passage from Allen's 1931 book, you have to remind yourself that it's a portrait not of 2007 but 1929:

"One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion."

Commentary Here...

[Jim]

The sky is not going to fall. There has been a strong run-up, and some minor price adjustments can be expected. I do not see a major recession in the near term. Capitalism is alive and in good health. At least IMHO.

[Darksaga]

I concur with Ranger Jim. Furthermore the crash of 29 was preceeded by the illegalization of the largest cash crop in the nation.

[lusus]

..Meanwhile, business began deteriorating in the spring of 1929, though the partying in stocks lasted until the fall...

Where is the deterioration? We still have positive, though moderating GDP growth after having 4 years of economic expansion that Europe or any developed economy would kill to have.

"Mergers of industrial corporations and of banks were taking place with greater frequency than ever before...Obviously, I don't need to point out how similar that is to the practices we are seeing today.

Actually it would be great if you could. Mergers are an effective way of 'right-sizing' industries. They also reduce shares outstanding which drives stock prices up. (Simple supply and demand). The global economy is forcing winners to get better still, which may result in job loss on a micro scale but enormous wealth creation on a macro scale. If you aren't invested this happens without you, just as it always has.

Giant footprints of the funds
Today, too, there are pool operators, in the form of leveraged-buyout (LBO) and hedge funds, both of which borrow money to invest. And, just like their predecessors, who ignored macroeconomic and corporate deterioration, they are partying as never before..."

The P/E of the S&P 500 was around 33 in 1929, its around 15 on a forward basis today. On that basis alone the comparison is laughable. Over the medium and long term (and the short term with a few notable exceptions) there is no safer, more consistent way to create personal wealth while maintaining liquidity than being invested in stocks. Don't believe the negative hype.

[CHUCKCOOLEY]

SORRY, NO CRASH IS GOING TO HAPPEN!!!!!!!!!! MAYBE U SHOULD TAKE UP GLOBAL WARMING! THOSE FUCKERS BELIEVE EVERYTHING!!!!!!!