80th anniversary of the 1929 stock market crash
Posted on 26 October 2009 with no comments from readers
This Thursday will be the 80th anniversary of the 1929 stock market crash, and investors will be hoping that this day of destiny will pass without incident this year.
To be fair last week the market did have its first down week in months. And if you look at the chart below then the Dow’s recovery and the 60 per cent retracement of the S&P 500 from its March low might give you cause for concern.
Rally up?
No rally in history has ever failed to correct eventually. The problem for those of us who have been bearish since mid-August is that we are terribly guilty of being wrong until we are proven right.
And the higher markets go the more dizzying the potential drop becomes. At the very least I would implore buyers today to think about the downside risk. Protecting your downside is often the key to making a fortune, and forgetting about it the easy way to lose one.
Again consider the graph below and ask how much upside might exist compared to the potential downside retracement. Perhaps like me you missed the rally. That does not mean you should stick around for the fall.
My credibility is not entirely in tatters, however, as this website harped on about a stock market crash last summer and autumn until it duly happened. Will history repeat itself again this fall or have the bulls taken the floor?
Bear rap
At the risk of sounding like a broken record, or perhaps the modern equivalent is the refrain of a rap artist, there is plenty of reason to think a crash will come soon: stocks are wildly overvalued and predicting a strong economic recovery which seems slow to arrive (and not at all in the case of the UK), and the bailout cash that has pumped up the global economy is now running out.
Did governments really save the world in March, or put back the Day of Reckoning by six months? Can the global economy handle $80 oil any more than $147 last summer? I would not bet on it. Keep an eye out for the Q3 US GDP data on Thursday, the 80th anniversary of the Great Crash.
no Comments posted by readers:
IU.com:You’ve been clear that you think most assets are currently overvalued. Do you think there are opportunities for investors in certain asset classes or certain geographies?
Roubini: Well, there is a wall of liquidity chasing assets. That liquidity can chase those assets higher for the time being until the huge carry trade—the asset bubble and the wall of liquidity—comes crashing down. You can still have all the risky assets going higher. Of course, the higher they go, the more they diverge from fundamentals, and the riskier the situation becomes. But eventually, if the recovery of the economy is going to be anemic, sub-par, below-trend and U-shaped, there is going to be a correction. And therefore my view is to stay away from risky assets. Stay in liquid assets. I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes.
Since you are a perpetual gold pusher you might want to include the following from his interview as well.
“Talking about gold Roubini said the price of the precious metal may continue rising but it is not likely to hit $1,500 as gold bulls predict.”
Ed Note: so up to $1,499 then?
I get the distinct feeling that you are doubting your own ability and wisdom. I do not consider your analysis to be wrong just maybe your timing and possible lack of patience. Is is not said that when all the bears turn bullish or submit to the bulls only then is it time to be cautious. Well I consider that we are nearing that turning point.
My view on this bull run is that until interest rates rise in the US only then will stocks turn down. Until then cheap US dollars will continue to flood the world creating a continued bubble in soft and hard commodities along with equities. All of this money after all has to find a home somewhere.
Its the UK economy and the actions of its government and central bank policy that the world is watching very carefully, and with very good reason. A currency crisis, house market crash or some other poor economic data will send significant waves throughout the market.
My own view is I do not see any change in the short term as all central banks will carry on printing money and delay and delay as long as possible any market correction. THe City Boys are making a killing at the moment so why spoil the party.
Question for you. Who does all this debt belong to. Once the debtor is bust, does that not mean the lender will soon follow as they never got their money back. At street level they have a good scrap to sort money issues out. The lender either gets his money or the debtor walks free, one way or the other this situation is resolved. Countries after all have been known to resort to the same offering. Is this the plan?
Oct. 26 (Bloomberg) — The U.S. Standard & Poor’s 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.
Declines are likely because banks will need to sell more shares to raise capital, the economist and president of research firm Smithers & Co. said in an Oct. 23 interview at Bloomberg’s Tokyo office. The closing price on Oct. 23 of 1,079.6 was 40 percent above 771.14, a level last seen in March, according to data compiled by Bloomberg.
“Markets are very vulnerable to an end of quantitative easing,” said Smithers, 72, who recommended avoiding stocks in 2000 just as the U.S. benchmark entered a two-year bear market. “Central banks, they’ve got to stop some time and if that happens everything will come down.”