Maxe Paul

First Call of a Double-Dip Recession: Setting Up a Market Bottom?

If you look at the 1929 crash (Dow Jones graph at Wikipedia) you will see that after the initial bear market in 1929 there was a large bear market rally into 1930, starting in December 1929 and ending in mid April 1930, this was when the majority of companies started to go bankrupt and led to the new and final low being posted in late October 1930.

Noone new they were in the great depression until October 1930 or after. This is the stage we are witnessing now, the December to April rally when we think the low has been put in, but it has not. Again we will see the next wave of CDS (credit default swaps) lead to a wave of bankrupt companies, hedge funds and banks over the next 6 months to a year.

When comparing the chart from 1929 to 31 with the current scenario today you will have to use a 5 year (Dow Jones) chart to see the similarity. In comparison you will note that it took two years for the bear to end in 1929,31, whereas today a five year chart may be needed to get the sane result. In 1929 America, England and several other countries which were large enough to create a global economy made up the damage (note Japan was not one of them).

Today the economy is 1000 times + larger given the global economy and the CDS market even drawfs this by a large magnitude. In effect the great depression may end up looking like the "second biggest great deppression" in comparison to the scale of the current crisis. To call a double dip recession i believe is a forgone conclusion, the question is "will we have a double dip recession into depression"?

If this is the case, we will again see a further bottom come October 2009, but that may only be again a temporary low, another not to be seen untill the next year 2010. This may sound so bearish as to be ridiculous, but once you compare todays 5 year chart against those of 1929,30 and compare the size of the economies you may like to reconsider if this is not so far off.

Personally, the scary similarity between todays charts and those of 1929,30 leaves me in no dought whatsoever we are going to hit a depression that makes the 1929,30 depression look like "the second biggest great depression".

Im sure many here will remember the Asian financial crisis, and how small that now appears compared to the current crisis. That bear market lasted 2 years, so do the sums on this one. If this bear has bottomed in one year, this would be nothing short of a complete miracle and pigs might fly.