Are We Repeating the 1930 Rally?

A number of folks have compared the current fall to 1937-38, partly on the view that 2000=1929. Yet a look at history shows a different analogy. We had an Auto Bubble from 1915-1919, then a Dow collapse of 72% into the early '20s. This seems comparable to the Internet Bubble of 1995-1999. In the Auto Bubble, roads, gas stations, tire shops, repair shops all got built out.  In the Internet Bubble, the digital economy all got built out.  In the 1920s after a tax cut, we had the False Bubble of 1925-29.  Florida real estate exploded.  In the 2000s after a tax cut, the Greenspan Bubble of 2004-2008 led to the huge credit distortion we are now working through. Florida real estate exploded.  (What is it about Florida?  It also had a bubble in the 1825-1836 canal bubble, which was followed by the first Great Depression in US history from 1837-1842.)  

Doug Short's excellent chart site dshort.com has been running a popular Four Bears analogy to prior bear markets. They pegged the start of this one to Oct 2007, and hence seemed to match the 1974 drop (or 1937 if they had shown a fifth bear).  Now they have matched the bottom in 2009 to 1929, and come up with this much more insightful chart.  A good commentary is at EconBrowser.  The good professor adds: 

Among the factors that turned the hoped-for recovery of 1930 into the debacle of the Great Depression were a sharp hike in interest rates in October 1931 and a decline in the overall price level of 10% per year in 1931 and 1932. Whatever else happens, I don't expect those particular mistakes to be repeated by the Bernanke Fed.

Perhaps he should be watching the PPI.  Latest stats show the sharpest drop since records started in 1947, of over 6% down in the past twelve months.  And that dreaded 10% drop in 1931 would be ahead if the analogy holds (if Mar09=Nov29, then we are in early 1930 and 2010-11 is 1931).  

Comments

[N]

Yelnick, dont get too bearish.

Carl Swenlin is on a long term buy signal

http://www.traders-talk.com/mb2/index.php?showtopic=110113

[tallyho]

Carl also says that you shouldn't jump into equities right now. He is of the opinion that false signals do appear, so protect your wealth. Decision Point states this very clearly. Don't be too bullish...

[wave cycles]

Both the 45-day wave and 120-day wave are due for a combo low in or around the September or early
October timeframe.

After Sept/Oct 2009, all three 45/120/360-day waves should be in rally phase together.

[da bear]

this rally also looks like the rally from June 1929 to the September 1929 top.
i found a chart somewhere, but i can't find it now...

i think gold may hold up better on this decline. supposedly gold held steady during the 1987 crash. correct?

da bear

This is not your father's Crash of '29. This one also has two zeros in the middle of it! lol

[chuan]

Cheers to the Yankees!!!
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Dow Jones Industrial Average (DJI: ^DJI)
Index Value: 9,483.66
Trade Time: 10:24am ET
Change: 133.61 (1.43%)

Prev Close: 9,350.05
Open: 9,347.86
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OK. OK. I will not declare today as the Yankee-Curse-Day as promised in yesterday's posting, in consideration/appreciation of Goldman Sach conniving efforts of getting the Dow UP n hitting 9500 today??

Around 17min after opening, part of Dow9250 posted here 3 days ago was bought out/sold at Dow9500, another portion still queing at Dow9515, which i noticed is at the upper limit of (20,2)BBands. My posted target is 9536,around there is the final balance which i expect to be closed out before market closing.

[Francis Schutte]

Analysts make a HUGE mistake by comparing the Great Depression with what we live today. In the 1920's and 30's, we did NOT have Fiat Paper money or the money supply was regulated by Gold. Today we have no limits at all and authorities can print "all the money they need or want". Because of this, the scenario for financial markets will be completely different.

[yelnick]

Francis, careful. We were on an oddball gold standard, the gold exchange standard that the Brits reintroduced in 1925, and then threw that away in 1933 (Brits tossed it in 1931). The Fed tried to do what Bernanke is trying today, but now as then the banks wouldn't lend. The main difference is that the Fed back then stayed within their legal bounds and let a number of banks fail that they could have provided liquidity to, to avoid runs on reserves. This is what Milton Freidman decried the most. And it is what Bernanke gets credit for (pun intended) last Sep when the TARP got held up. I do not think the FDR government felt constrained by gold; they seem more constrained by the aura of needing to balance the budget or at least avoid too bad a deficit, in 1937. They got over that fast.

[Francis Schutte]

You're correct about Britain going off and returning to the Gold standard. The US however never went off and hence us money supply stayed controlled by Gold.

Today we have Fiat paper money, quantitative easing and trillions created by the push on Enter. We have authorities controlled by Wall Street who will under 'no condition' allow Pension funds, Insurance co's and Banks fail: money will be printed in eternam each time there is the slightest risk stocks could come down...A hyperinflatinary depression we shall have and I am about 99% sure of it. One simply has to be blind not to see it.