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Thread: weekend commentary - 1929 similarities

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    Default weekend commentary - 1929 similarities

    (snip)"Where are we in 2006?

    1. We took the time to revisit this history to explain there is nothing really new today compared with those events preceding 1929.

    2. Credit is way too free and easy.

    3. Money seems to have less value each day.

    4. Inflation while not of the hyper-variety is trending in that direction.

    5. There is too much big cash liquidity sloshing around on the cheap for hedge funds and New York take-over artists to promulgate their trade.

    6. There is a very wide disparity between a handful of very rich people and the poor with a vanishing middle class. This is common before major market corrections.

    7. Trade wars and tariffs are on the table. These threats are uttered almost daily.

    This is the usual “Me first” nationalistic mentality. Putin scared Europe with his gas shut-off and Ms. Pelosi our new Demo leader is threatening China with 27% tarrifs. The Middle Eastern gang threatens oil shut-offs and currency transfers out of the U.S. Dollar.

    8. Business ethics have collapsed in the past few crazy years destroying entire companies and wrecking others with misplaced trading ideas. Enron and a few early hedge fund failures are evidence. Those boys managing that $6 Billion natural gas fund debacle were just all re-hired by Goldman Sachs to have another go. Others are Fannie Mae, Freddie Mac and the still hidden Farm Home Loan operations. The list goes on and on.

    9. Then, we have the forever war in Iraq which appears to have degenerated into a worsened civil war threatening to destabilize the entire Middle East with Iranian and terrorist aggression. Crude oil will be used as a major weapon. Do not believe otherwise.

    The stock market low from 1921 to the 1929 high was more than 500%. Interestingly, the percentage of increase is comparable to our modern day pre-crash rally of the Nasdaq.

    We do technical analysis and are always looking for historical comparisons. In checking the 1928-1929 top, we discovered the preceding eight year rally run was so powerful it took nearly 18 months to form the technical top before it all dumped over. Usually these tops can form and sell in much less time. Today in 2006, our fellow colleagues and analysts have kept predicting the tip-over top and it keeps extending! This was the big story before the 1930’s major league event.

    Another interesting situation was the large amount of foreign loans made by the USA (both public and private) for war restoration in Europe but also throughout several other nations as well. This was the first time big money in large amounts was loaned outside of the USA. From 1919 to 1930 the total exceeded $15 Billion which was massive bucks in those days. Please note that over ˝ of this money went into portfolio investments where there was zero American management of those funds. Sound like China?

    Domestically, America by 1929 had discovered most of the newer investment frontiers and there were not enough new trading or investment ideas to swallow all the available capital that was being tossed around. Does this sound familiar? Today we have the same problem but it’s probably 1,000% worse since Japan’s carry trade and our dollar printing have escalated credit to legendary new heights.

    Exactly 80 years ago in 1927, as in our forth-coming 2007, real estate and construction were and are in the soup followed by major inflation. At this cycle juncture people are getting tense with bad credits, lack of cash, higher prices, and failing installment sales of several kinds with questionable erratic stock markets.

    Here comes the big one: In 1927 when it was obvious business and commerce was slowing dramatically, THE FEDERAL RESERVE BANKS BEGAN TO BUY GOVERNMENT SECURITIES. It seems there is nothing new in this world at all.

    Also, in 1927, it was reported and generally believed by the American public that the Federal Reserve purchases were taken to PREVENT LARGE EXPORTS OF GOLD FROM THE BANK OF ENGLAND TO THE UNITED STATES. INTEREST RATES IN ENGLAND WERE HIGHER AT THE TIME. THIS RATE DIFFERENCE AND THOSE POTENTIAL GOLD SALES WERE CONSIDERED A THREAT TO UPSET THE TEA CART ON BOTH SIDES OF THE POND. Is this de-ja vu all over again or what?

    In 1928 the Federal Reserve was openly trying to discourage speculation. In spite of their efforts stocks went on a wild buying spree in spring of 1927 which spilled over into 1928-1929. The markets kept advancing and as the “easy money” became common street talk, the explosive pinnacle appeared over the horizon. This open craziness by the public at large surfaced in 1928 but in May of that year the market had a severe correction (Like May 2006 or will it be May, 2007?)

    A common phrase in later 1928 was that the country was experiencing a “profitless prosperity.” Today Wall Street observers and players deem it a profit recession or a “Goldilocks Economy” somehow masking Goldilocks’ terminal illness. The Federal Reserve tried to reassure the public in later 1928 that despite gold exports following a discount rate reduction in fall 1927, our nation still held gold worth over U.S$1 Billion. Period analysts checked for gold exports and found few if any and decided this announcement was public relations talk to reassure the Sheeple. We certainly know all about this today don’t we?

    In November of 1928 the stock exchange reported its first of five, six million share trading days. Watch for this kind of similar volume to precede the next blow-off top. From August of 1929 through the fall, this was the beginning of the end as speculation and gambling fever in the markets was virtually uncontrolled. The initial crash lasted two months and was followed by a rally of six more months into the spring of 1930. After that the markets sank into oblivion.

    One largely unnoticed fact was the idea these markets had mostly recovered by 1936. This was not the case however, and those that had re-entered with fresh buying in 1934-1935 were smashed for a second time in 1937. That one had to be the mother of all “Dead cat bounces.” Is 1937 to be replicated in 2007? The timing sure looks identical to us. During the past year or so, we have read several remarks from our colleagues that 1934-1936 closely resembles 2004-2006. Can this be true? We have seen some overlay charts for both cycles and they are very close in appearance."(snip)

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    Default Re: weekend commentary - 1929 similarities

    Then does this mean that come 2009-10 we'll start to pull out and prosper again?

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: weekend commentary - 1929 similarities

    ^^^ continuing with the analogy, I guess that depend on when WW3 starts ... because arguably there wasn't any real pullout and prosperity until WW2 started which massively cranked up demand for US produced war materiel to be sent to Britain, France and Russia via lend-lease.

    Curiously this is just the opposite of today's situation, where it is now China that is producing the goods for export and it is also China that is lending foreign countries (i.e. America, via US T-Bond purchases) the money with which to buy those exported goods !

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    Default Re: weekend commentary - 1929 similarities

    I knew you'd say something to that effect. I guess we should move to China in a couple years then

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: weekend commentary - 1929 similarities

    ^^^ moving to China really won't work either ... because like the US economy the vast majority of the additional 'earnings' are staying in the hands of the 'ruling elite' - gov't officials, company managers, 'new economy' entrepreneurs etc. Well over 90% of Chinese workers are earning less than $200 per month - and of course Chinese 'peasants' aren't even earning that much.

    If you want to make money off that sort of economy, you might as well dance in Manhattan and hit up the bankers, brokers, attorneys, corporate bigwigs etc. !!!


    Back to the WW2 question, in cold hard economic terms the military draft of WW2 did more than anything to really create postwar 'prosperity' in America. First, WW2 casualties 'permanently removed' some 400,000 young American men from the post-war workforce. Second, for those that weren't 'permanently removed', 2 million+ other young American men were given exposure to authority / discipline, were able to obtain training / experience that would be valuable in the post-war workforce etc. As the US population has increased about 2.5 times since WW2, getting an equally positive economic effect today would require the 'permanent removal' of about 1 million young American men in a WW3 scenario.

    Today, though, there is a 'problem' that didn't exist in 1939. Back then factories that had previously been producing cars that weren't able to be sold could be retooled quickly to produce jeeps, trucks and tanks - with formerly unemployed auto workers possessing all of the skills needed to make jeeps, trucks and tanks just as easily as cars. However, today's military technology is much smaller in scale but much higher in tech i.e. cruise missiles, carbon fiber stealth aircraft etc. Thus today there isn't any direct transferrability of skills possessed by most unemployed Americans, and certainly not for the 'structurally unemployed' (the rumored 7-10% of Americans who have no skills, have given up looking for 'mainstream' work, and thus are not counted in official US unemployment statistics). Similarly, today's military needs / wants people whose skill level vastly exceeds being able to carry a rifle and act as a target, as was the case in WW2.

    From a purely economic consequences standpoint, every war after Korea has involved casualty figures that were far below those necessary to make any significant change in the 'tightness' of US labor markets. Also, the paradigm has now shifted such that if such a 'tight' US labor market were to develop for whatever reason, the gap would be filled by outsourcing or by H1B immigration of highly skilled foreigners willing to work at pay rates well below their US citizen counterparts. Also, every war after Korea has not involved the diverting of basic resources away from the civilian / consumer sector, meaning that unlike the duration of WW2 US consumers still have a wide variety of new cars, new / remodeled houses and furnishings, new consumer electronics etc. available for purchase at any time. Thus today no 'pent up consumer demand' would accumulate as it did during WW2 and arguably the Korean war that could then act as a tremendous private sector economic stimulant for many years after the war ends.

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    Default Re: weekend commentary - 1929 similarities

    Well I was thinking more along the lines of moving to China to become one of their 'new economy' entrepreneurs

    But ehh, I'm not ready to learn Chinese yet. I'd still rather move to Costa Rica

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: weekend commentary - 1929 similarities

    ^^^ I'll take Malta, personally !

    As food for thought though, keep in mind that the new US congress will be coming into power shortly, and some weird things are already afoot ...

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    Default Re: weekend commentary - 1929 similarities

    Interesting...


    And for some reason I keep forgetting about Malta. I went to college in London with a kid from Malta. Perhaps I should look him up

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: weekend commentary - 1929 similarities

    I have only two words for this theory that we are entering a new Great Depression:

    Chicken Little

    Ofcourse it is always wise to be prepared as well as one can for bad times but a little perspective goes a long way.
    The essential humanity of men can be protected and preserved only where government must answer--not just to the wealthy, not just to those of a particular religion, or a particular race, but to all its people.

    Robert F. Kennedy
    June 6, 1966

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    Default Re: weekend commentary - 1929 similarities

    ^^^ this was also the opinion of most business leaders and gov't economists in 1928 and 1929 !!!

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    Default Re: weekend commentary - 1929 similarities

    When the everyday person has the ability to get into financial instruments - that is - the ability to have some say about how things are done - that is the time when the usurpers of power swoop down and punish. Yea - I'm a little cynical.

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    Default Re: weekend commentary - 1929 similarities

    Quote Originally Posted by Melonie View Post
    ^^^ this was also the opinion of most business leaders and gov't economists in 1928 and 1929 !!!
    So as of today, how much time would you say needs to pass before we can fairly judge if this fear of a new Great Depression it is a Chicken Little theory or not ?
    The essential humanity of men can be protected and preserved only where government must answer--not just to the wealthy, not just to those of a particular religion, or a particular race, but to all its people.

    Robert F. Kennedy
    June 6, 1966

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    Default Re: weekend commentary - 1929 similarities

    ^^^ well, financial statistics usually recognize trends based on at least 2 quarters worth of performance. Considering that the seminal US election occurred in November, adding two quarters would take us to May 2007.

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    Default Re: weekend commentary - 1929 similarities

    Quote Originally Posted by Melonie View Post
    ^^^ well, financial statistics usually recognize trends based on at least 2 quarters worth of performance. Considering that the seminal US election occurred in November, adding two quarters would take us to May 2007.
    Very well then... we'll check in around 5/07 to see if there has been a new Great Depression in the USA. I'd don't think it's going to happen but one never knows I suppose.
    The essential humanity of men can be protected and preserved only where government must answer--not just to the wealthy, not just to those of a particular religion, or a particular race, but to all its people.

    Robert F. Kennedy
    June 6, 1966

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