Today's Market vs. 1938

Over the last several weeks, there have been numerous comparisons made between today's market and 1938. As shown below, an overlay of the current S&P 500 over the period of 1936 - 1938 shows two similar patterns in both the decline from the peak and the advances off the lows. With that in mind, we looked to see how the S&P 500 would have to perform going forward in order to keep the relationship going.

As shown below, at its peak last week, the S&P 500 rallied 38.2% from the March lows. In 1938, the S&P gained 50.5% in the four months following its low. If the S&P 500 were to have a similar rally off of its lows today, it would top out at 1,018. While breaking 1,000 on the S&P 500 seems remarkable given where we were in March, it is still nearly 200 points lower than where the index was trading before the Lehman Brothers bankruptcy.

Comments

[ChasA:]

How valid can this comparison be when the Govt. in the depression years failed to stimulate the economy until FDR came into power, by that time it was too late. Today all the major economies are being stimulated world wide by the reserve banks of their respective countries.

May 18 04:03 PM

[Prudent Man...:]

What happened in WWII?

Should we have WWIII?

May 18 05:36 PM

[socrateazz:]

Hmmm Interesting. I could be wrong but I am more inclined to relate this rally to a prelude to a final drop in the fall. I guess the future will show itself. I personally think Obamanomics will create problems that will persist for decades. I hope I am wrong

May 18 06:27 PM

[puravidavid...:]

The peak of this rally may correct 50% of the decline from autumn 2007; S&P could return to 1000 or more, but with rising consumer and corporate insolvency and credit implosion, central banking monetizing and legislative fiscal stimulus (that will come come short of resupplying demand in excess of the drop in GDP) is anticipate the market to test the early March 2008 lows and then break below in another leg down to the long, long term trend line supporting the lows of the 30s and 70s...

May 18 07:16 PM

[User 383693:]

Better hold on boys and girls cause a couple of days to a week or so after all the banks pay back their end of the TARP $. This Bull rally is just a bunch of bull to raise enough money for the pay back of TARP. This thing is going to go South. Hope I'm wrong.

May 18 07:28 PM

[RiskReturnO...:]

I prefer the 1974 playbook, but I'll settle for 1938 as well.

May 18 07:38 PM

[Dean M:]

Just 55%???


On May 18 03:59 PM Cetin Hakimoglu wrote:

> Yea, but in the great depression the market lost 90% of it's value
> versus just 55% from October 2007 to March
>
> if your still shorting this market, please end the pain and throw
> in the towel.

May 18 09:42 PM

[Missing_Link:]

INCORRECT.

You got the time scale wrong.

As Plan B Economics points out, the peak-to-trough for the Great Depression lasted 3 years. We haven't been 3 years yet.

www.planbeconomics.com.../

Note the first graph in particular, which makes clear that we're tracking VERY CLOSELY to the Great Depression market for the first 19 months, including the large "sucker's rally" at the end.

If the comparison were to continue to hold (which of course is highly debatable), that would mean a 75% drop by October 2010.


On May 18 03:59 PM Cetin Hakimoglu wrote:

> Yea, but in the great depression the market lost 90% of it's value
> versus just 55% from October 2007 to March
>
> if your still shorting this market, please end the pain and throw
> in the towel.

May 18 11:52 PM

[Missing_Link:]

Because the stimulus is fail!

"The package is ‘not strong enough, not targeted enough, to deal with these problems’, he noted. You have to admit expecting government spending to produce an instant and rapid recovery always looked a bit of a long shot." -Martin Feldstein

arabianmoney.net/2009/.../

If one of Obama's OWN ECONOMIC ADVISORS admits the government stimulation was a long shot and won't work, how on earth are you saying it's a sure thing?


On May 18 04:03 PM ChasA wrote:

> How valid can this comparison be when the Govt. in the depression
> years failed to stimulate the economy until FDR came into power,
> by that time it was too late. Today all the major economies are being
> stimulated world wide by the reserve banks of their respective countries.

May 19 12:02 AM

[Missing_Link:]

Bespoke guys:

These charts are HIGHLY misleading.

They start in 1936. The actual peak began in 1929. Any real comparisons to the Great Depression need to start from that point, as with the charts posted by Plan B Economics: www.planbeconomics.com.../

I hereby call you on your shenanigans.

May 19 12:18 AM

[Missing_Link:]

Seriously, Cetin, think about it:

If an investor is really sophisticated enough to short the market, don't you think they're also sophisticated enough to set stop limits on those short positions?

If so, why would they need a random poster on the Internet to tell them when it's time to get out?

On May 18 03:59 PM Cetin Hakimoglu wrote:

> if your still shorting this market, please end the pain and throw
> in the towel.

May 19 12:54 AM

[Alan von Al...:]

Cetin performs an important function. When he's wiped out, it will be time to go long.

May 19 01:16 AM

[alajac:]

The actual correspondence is the modern NDX to the 1930's DJ-30 (see 1929-1939 vs 1999-2009, a comparison I have been making since at least 2006 and which allowed me to call the crash ("here comes the crash, go to cash") on June 3rd, 2008 (documentation available). the 1939 pullback held the bottom of the uptrend, but is unlikely to do the same this time. Even if they decide to "create" another war to get out of it, there is just not enough need for human labor in a cyberneticized world for even a war to fix the systemic problem (short of killing off BILLIONS of no-longer-required laborers).

A fix is very easy though: replace Fed dollars with our own non-debt money and compensate everyone $1000 per month for the loss of the right to free access to land that Tom Paine described in his Agrarian Justice plan (which see at en.wikipedia.org/wiki/...). I differ with Paine in contending that EVERY GOVERNMENT is the "de facto" (en.wikipedia.org/wiki/...) owner of all the property (natural, human, etc.) within its domain, and should therefore be the entity liable for payment of compensation to all those whose free access to land it has impaired.

The plan that will fix everything (including unemployment, decent treatment for our vets, most crime, illegal immigration, etc, etc) is on the "alajac" page of u4prez.com. Until something like it gets implemented, the overall trend of prices for ALL assets classes will be DOWN. In a world where Money=Debt, the destruction of $30 trillion dollars worth of debt is not going to be made up for by running the Fed's printing presses for even a good bit. So far they are spitting into an ocean of destroyed credit.

We may see a bottom in 2012 (after this "slowdown in the crash" that will probably last into 2010), but, rather than holding my breath, I'm doing something about it. Take a look at the "alajac" page to see what that "something" is.

May 19 03:25 AM

[bartpr:]

i am inclined to follow the long time technician, gail dudek, who used to be on wall street week. her view is that we are in the middle of a 16 to 20 year cycle on the bear side, following the 1982 to 2000 bull.
she went back to the early 1900's and demonstrated the 16 year cycle in the business week article in early may.

the market will traded in a range and not break out above 1500 on the spy until sometime after 2016. we are nine years into this cycle and have 7 to go.

other long term bull and bear thends were 1929 to 1950 bear, 1950 to 1968 bull. 1968 to 1983 bear.

no economic analysis has demonstrated any market timing success. cycles overshadow all this. long term investors are doomed in this picture. better stay out entirely.

May 19 08:55 AM

[Lynn:]

Commenters,
This is not a graph of the Great Depression, it is a graph of the 1937/38 bear market. Bespoke did not screw up.

May 19 03:58 PM

[Vienna:]

Fine, but why would we only want to look at one short timespan of the great depression, if we are trying to compare the depression with the situation we have today?
Especially if this timespan is 8-9 years after the depression started.


On May 19 03:58 PM Lynn wrote:

> Commenters,
> This is not a graph of the Great Depression, it is a graph of the
> 1937/38 bear market. Bespoke did not screw up.

May 20 06:54 AM