Comparing This Past Week to the '87 Crash

Most Dow stocks were down more this week than during the week of the '87 crash.  As shown, GM was down 45%, AA was down 41%, BAC was down 39%, CVX was down 27%, and AXP was down 25%.  Only two Dow stocks were down less than 10% this week: JPM (-9%) and GE (-0.32%).  Maybe the most important takeaway is the returns these Dow stocks have had since the '87 crash.  Who knows when, but we will go up again.

click to enlarge

Comments

[davenerven:]

So hedge funds had to cough up $400+ billion to pay for their Lehman's CDS positions. The market was very very nervous of more defaults before the settlement last Friday, but it looks like it's all been settled in a fairly orderly manner. Now one side is down $400+ billion and the other side is long $400+ billion. My guess is that the side that's now long $400+ billion is going to use their new cash to squeeze the heck out of the market shorts and make more money. What can be a better time to do this than now? So, perhaps, just perhaps, we can expect the rally of a lifetime soon as the shorts run for cover from a tsunami of buying. But, I might be completely wrong. Still, it is a scenario that makes sense. The world governments have done more than enough to unlock credit but I think credit was tight because of concerns over the Lehman CDS settlements. Now that is out of the way, anything can happen, which means that everything will probably happen all at once.

2008 Oct 12 08:18 AM

[TimButler:]

Bespoke Investment Group's charts are virtually always insightful and fact based -- this one is another good example.

It would be nice to see the Dow Stocks in a table with current P/E, P/Bk, P/Sales, and P/Cash Flow, along with a last line entry showing the Dow's long run average for these benchmarks.

As for Chris E's comment above -- beware -- and be wary:
1. I do not believe that the $400b in CDS's (Credit Default Swap) have been paid, which are the contract obligations due on the Lehman debt default auction which was completed at the end of last week.
2. Chris E's website is non-operational.

Tim Butler

2008 Oct 12 09:42 AM

[BlueOkie:]

Looks like data mining to me! A week in time means little.

2008 Oct 12 10:21 AM

[formerhawk:]

If that 400 billion hasn't been paid yet it will be in short order. That money is going somewhere. My bet is the market.

2008 Oct 12 11:35 AM

[107Sid:]

Perhaps some of the $400 billion has already been put to work via options, margin, etc.

2008 Oct 12 12:34 PM

[Vobogeck:]

Instead of focussing on the single week losses, investors should focus on the third column. Only GM is a long-term loser.

2008 Oct 12 12:55 PM

[themicrokid:]

The DJIA regained its post crash high on 1/26/1989, 322 trading days since the crash. On 3/29/1889, the 2274 By 3/10/1993, the DJIA visited double the 1738.74 trough for the first time. By June of 1993, the DJIA had established this level of 3478 as a floor, not to be seen again.

By 2/6/1996 the DJIA was a double, 5445 from the 2722.42, 1987 peak

We have now lost 39% in 254 days.

254 days versus 39 days, quite a difference.

But with all the stimulation pumped into the economy, it is hard to beleive when the economy starts working, the response won't be fast and furious.

I regret doing this analysis using the DJIA, but it seemed to best address this post. The DJIA, the most poplular average IMO should be relegated to an arcane position for multiple reasons. 1) Small number of stocks 2) Manipulated by periodic changes of divisors 3) Stocks added and deleted 4) Price weighted rather than market cap weighted.

2008 Oct 12 04:32 PM

[PeteK:]

GM is the "Mother of All Losers"
Used to be No. ONE automaker in the world.
Now near bankrupt. Who did it to GM ?
The unions ? Greedy workers ? Bad management ?
Or, all of above ?

2008 Oct 13 09:04 AM

[Lacey:]

This was a great post! There is so much turbulence in the
market today, and people need peace of mind more than
ever. I wanted to offer your readers a link to another
blogger who is doing great work. He writes about our '
childhood money messages' and how the best approach to
stability in today's market is to resist letting these
emotions control our buying/selling habits. It is really
fascinating work, and something you should all check out.
His name is Spencer Sherman, and you can view his blog at
www.curemoneymadness.c....

2008 Oct 14 04:43 PM