Towards another Great Crash?
Posted on 25 October 2008 with no comments from readersWe have just passed the anniversary of the start of the Great Crash of 1929. The situation in markets is reminiscent of that terrible time 81 years ago.
As The Telegraph reports then “Black Thursday marked the first day of the crash with panic selling ensuing on the Dow Jones. This was triggered by predictions of an impending market crash, leading to a record 13m shares being traded.
Later that day, five banks gathered about $20m (£13m) together to buy stock and restore confidence in the market as the Dow closed at 299.47, with the rally continuing into the next day. However, by Monday, termed “Black Monday”, panic selling resumed as the Dow dropped nearly 40 points (about 13pc) to close at 260.64. The Dow dropped another 30 points a day later on “Black Tuesday” to close at 230.07 as 16m shares were traded. The market had crashed.
Yesterday the Dow Jones index recovered from a near 6pc fall at the start to down 3.6pc at 8378.95, while the S&P500 closed 3.4pc lower and the Nasdaq was off 3.2pc. Before the market even opened, futures trading in all three indices was suspended after each market fell by its maximum daily limit.
After a truly up-and-down last five days on the markets, the Dow closed the week down 5.4pc, Nasdaq down 9.3pc and the S&P down 6.8pc. The S&P – a much broader index than either the Dow or the Nasdaq – closed at a fresh five-and-a-half year low, and is now down 40.3pc since the start of the year.”
However, this is perilously close to my own gloomy prediction a few weeks ago of 7,000 on the Dow and 3,300 for the FTSE. The most pessimistic forecasts are now for 5,000 on the Dow within six months.
Professor Nouriel Roubini – whose star is shining as the sage who predicted this holocaust – says we still have to see the hedge funds implode and markets suffer temporary halts to trading as this disaster unwinds. He has been right so far and nobody is offering a plausible alternative scenario.
But I think it will soon be time to sort out some early recovery candidates among equities. At the moment all ships are sinking in the storm, but some will survive to continue trading without the former competition.
All the same, do not get too carried away. There is a calm after a storm but also a lot of wreckage.
no Comments posted by readers:
Hi Peter,
Thanks for a great majority of your present, and past, articles. Congratulations on your forthcoming Book, also.
However, you have been preaching Gold and the buying of Gold as a hedge, and long term holding, in ALMOST every article.
Peter, Gold is no where near your stated target of $1,000, or even in a respectacble range, near it in the premier league.
In fact it is heading lower each with trading day.
The same goes for the preaching on the delinking of the GCC currencies from the US Dollar, sorry, but wrong again.
USA is the engine of growth in the world, and despite all of the imperfections here, imaginary, and/or, real, the recovery will start in USA. BRICs( Brasil, Russia, etc.) have no real credit/money, borrowed, and/or, otherwise.
Perhaps they should be known as TCBRs, The Certified Bannana Republics or better still, PT, Paper Tigers.
The rule of law, and total freedoms ensures that every Dollar in the US will be returned, but one must invest wisely.
As for that utterly depressed character, Roubini, he needs to be admitted to a mental health facility, before giving out any more advise.
There is no glory for stating the facts that are on public records, always, due to a very open and powerful free press, and only a dummy will buy stocks that have fundamental problems.
Furthermore, NR, finds the wrost aspects of a very complex financial situation and repeats it like a Parrot with monotony being his currency of choice.
You are correct that there MUST be a capitualtion and we may even visit the sub 8, 000 lows set in the DJI, however, this is ALSO the opportunity of a life time to own stocks, but the right stocks, that each investor should research for him/herself and act accordingly.
Paying to much undue attention to the merchants of doom and gloom is a waste of time. I wish wisdom for all.
Sorry nad due correction for the last para, and the missing “O” it should read :
TOO much attention……Rather than… to much attention.
Thanks John – The USA is the banana republic, printing dollars and assuming massive overseas debts. The BRICs hold most of that debt by the way. US deflation and recession will be followed by high inflation like in the 70s. High inflation is another banana republic quality.
Over the past 10 years the S&P has delivered performance below cash – it is a fact. So I wish you well with picking the outperforming stocks for the next decade. This could well be like 1929-47 when investing in stocks would have delivered no return. Remember this is a financial crisis, not an ordinary cyclical economic correction.
You seem to despise Professor Roubini – perhaps because his judgement has been proven correct while your own has not. Actually his pronouncements of the past year have so far been too optimistic – the crisis is deeper and faster than he said in Dubai a year ago when I met him and quizzed him on it.
What can you buy in this environment? The US dollar can only be in a rally before a massive slump – something that will kill many unprepared investors. That is why I would urge anybody with cash to diversify into precious metals. Bonds pay miserable rates and as soon as people decide to step back into equities ‘en masse’ the USD will collapse – how long it will be before this happens I can not predict. But how far can the rally be away – post Nov 4th perhaps?
I have never argued for 100% precious metal allocations – but the benefits of diversification are clear, and a touching faith in the US financial system is not required. There are still many people who cling to past investment strategies and the problem with investment strategies is that they perform over time and do not always deliver instant results. Write to me again in a couple of years about gold!