Delightful analysis, via Floyd Norris Saturday column:

“Even after Friday’s large stock market rally, only 10 of the stocks in the Standard & Poor’s 500, the premier American stock index, are higher than they were at the end of 2007, and the index itself is down almost as far as it was in the worst year it ever experienced, at the height of the Great Depression.

Although the accompanying charts focus on the United States, similar things can be said in most markets. Only a handful of European stocks are up this year, and within the once buoyant Chinese and Indian stock markets, there are almost no stocks showing gains.

There has, in other words, been nowhere to hide from the collapse of 2008.

The ubiquity of the problems reflects how integrated the international financial system has become, as well as the fact that most of the world is now in recession or getting close to it.

Moreover, many asset prices were pumped up in years past by excessive debt, and are now falling as many investors choose to, or are forced to, reduce their borrowing.

Standard & Poor’s has been keeping statistics on the breadth of the 500 stocks in the index only since 1980. Until now, 2001 was the worst year on record in that regard, when just 131 of them rose. But unless there is a substantial year-end rally, that figure could be 10 times the one for 2008.”

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And here is your Sunday morning chart porn:

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Source:
And You Thought 1931 Was Bad for the Market
FLOYD NORRIS
NYT, November 21, 2008

http://www.nytimes.com/2008/11/22/business/22charts.html

Category: Data Analysis, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “And You Thought 1931 Was Bad”

  1. jmborchers says:

    It’s not so surprising. The market has priced in depression as a possibility. Is it fully priced in if it were to happen. I think not. But how can we get there. As BR noted yesterday depression is actually more than 4 Qs of -10% GDP.

    How the heck could we get -40% GDP over the next year? Seventy three percent of GDP is consumer sales. That would indicate that the consumer will be mostly responsible for whether or not depression is possible.

    I don’t think there is any doubt that right now that auto sales and home sales are in depression and retail is looking really bad with some stores claiming down 10-20% for October. All these are definately on the mark for depression for October. Oil price is way down already some 66% from the peak. Depression pricing for oil, absolutely or so it seems.

    But these need to continue to worsen at this same rate feeding on itself for depression to occur. Can the stock market continue to go down 10% per quarter? Almost all tangible items need to continue down at 10% per quarter for depression to occur.

    I don’t think this is a likely outcome. Last year the gov’t has already showed us that they can be a real pain in the royal ass if you chose to bet against the market. Make any quarter next year less than 10% negative GDP and we have a recession by definition instead of a depression.

    The timing couldn’t be better for us to come out of this. Christmas is coming. Are people going to really give each other nothing for the holidays? It’s possible but I don’t think it’s likely. I do think hard hit areas like CA, FL, IL, AZ are going to see people getting nothing for Xmas. You can’t give when you are bankrupt.

    The market is down 50%. A strong bear market by any means. This means it’s totally possible to get a 20% ralley upwards as shorts stab each other in the back as they give up their bearish stance.

    I’d like to know if BR got stopped out on Friday. QID 120 seems possible but for that to happen QQQQ’s need to go down another 15% or so and soon because the volatility is quickly wiping these double funds out on both sides. I wish both Steve Barry and BR luck on the QID 120 target.

  2. E says:

    jmborchers, the basis of your point is flawed. One, the definition of a depression is not negative 10% GDP growth each Q – it’s an overall 10% drop in GDP. And two, you are trying to apply a binary outcome set to a non-binary system. The markets are not doing an intrade bet on whether or not we meet some technical definition of depression – they are pricing in future expectations of the economy. A negative 9% GDP is not sunshine and lollipops, just because it doesn’t meet an arbitrary definition of depression.

  3. jmborchers says:

    Re-read that. Yeah that’s right GDP -10% for 1 year. Then we are already likely there and it’s only how long will it last.

  4. ironman says:

    For those who might be interested, this tool will approximate your inflation-adjusted investment returns, assuming full dividend reinvestment, for the S&P 500 (or really, its precursor indices), during the period including the lowest point the stock market hit during the Great Depression.

    If you’d like to get the actual rates of return recorded between any two months since January 1871, then this is the tool you need to use.

  5. Jim C says:

    Well, we saw a 30% of more decrease in GNP during the great depression. That was a manufacturing driven economy. It would seem to me that a service driven economy is a totally different beast.

    I don’t KNOW that it will be better, I suppose it could be worse; but, intuitively, it seems to me that decreasing GNP that much in a service driven economy would be harder. So, times should not get nearly so lean. Besides, the presses are working overtime this time.

  6. Steve Barry says:

    jmborchers said :”I’d like to know if BR got stopped out on Friday. QID 120 seems possible but for that to happen QQQQ’s need to go down another 15% or so and soon because the volatility is quickly wiping these double funds out on both sides. I wish both Steve Barry and BR luck on the QID 120 target.”

    jmborchers, or anybody else, can you explain this statement? Here are the facts…since 9/2/08, probably the most volatile period in the history of stock markets, QQQQ has gone from 46.12 to 26.67…a 42% decline. QID, double inverse fund, has gone from 42.31 to 90.11…a 113% gain, plus it paid a .20 dividend.

    What do you have against QID that you constantly put out false and ridiculous statements, not backed up by facts? I said in January QID was the buy of a lifetime, after 10 years of research. I am up 137% YTD. My target is still 120.

  7. DL says:

    A 10% decline in GDP for 2009 is highly unlikely. Obama will run a three trillion dollar deficit if he has to. Plus some helicopter drops on top of that.

    The worst case (IMO) is a series of rolling recessions for the next 10 years.

  8. DL says:

    SB @ 2:38

    QID is a good option for people who have money in an IRA.

    For people with money outside of an IRA, shorting QLD offers advantages and disadvantages over going long QID.

    People who have a weak stomach (and who lack conviction) might just prefer DOG for their IRA’s.

    I would say though that EEV looks downright dangerous for anyone but the most nimble.

  9. Bruce in Tn says:

    DL…I agree with you, BUT, when main stream economists first realized the 4th quarter would be negative, they agreed initially it would be barely negative…something in the range of -.3%…now the estimates, at least the consensus I read says probably -3%, and some are coming into the -4 to-5% range..all within the last 3-4 weeks…

    I would certainly like to see what the GDP for the 4th quarter comes in before I had more conviction that a -10% is not a likely outcome…

    Again, I agree with you, -10% seems unreasonable based on my life experiences heretofore, but let me see this quarter….

  10. DL says:

    Bruce @ 4:41

    My comment pertains to 2009 as a whole. That’s not to say that there can’t be a single quarter with a negative 10% reading.

  11. Bruce in Tn says:

    DL…thanks, and I agree with you. As I understand it, if we have a decrease of ten per cent, we are IN a depression….

    And frankly, as I have posted before, what scares me here, and I have done my own investing for decades, is how this thing is feeding on itself worldwide, and how there seems to be no strong nation or group of nations emerging to pull us out of this…I think the China thesis is nuts…

  12. Simon says:

    Is it kind of like a global Asian financial crises? I read that in Thailand some sort of currency adjustment occurred that was percieved to be a good idea. I think the currency was devalued to support exports.

    But a feedback loop occurred which caused the currency to drop much further than expected and resulted in such a great capital flight that a severe recession was the result. This is what seems to be happening worldwide. The contraction is feeding on itself so severely that no amount of central bank liquidity support can prevent it.

    Is it really possible that unless radical money printing occurs and savers are forced to spend THEIR money or lose it, a new depression will result?

    Are we going to see the mother of all whipsaws?

  13. Boomer108 says:

    Was just at a family dinner, where the consensus was:
    RALLY!
    Reasons:
    – Hedge funds have nothing left to short, “no good short ideas”
    – Shorts have had it too easy
    – T bills are yielding nothing
    – Deflation means can’t go to commodities
    – So stocks are the only place to make money
    Views were split on whether we’ve bottomed, or will rally then bottom.

  14. jadogsl says:

    But why is this occuring now ? Read below. And be sure to read the last link before making a judgement

    Did the enforcement of Fair Value Accounting i.e FAS 157 effective for fiscal years beginning after November 15, 2007 coincide with the early stages of the meltdown of the bond and equity markets ? Or was it a coincidence ?

    There is no doubt that some financial-services firms found themselves ill-equipped to perform such acrobatics. Finance executives in the sector complained that the fair-value rules were “pro-cyclical” – that they were a self-fulfilling prophecy forcing banks to sell their securities in plummeting markets.
    ( paraphrased from CFO.com )

    The big picture, a common sense view …. CSCO stock was at $80 in 2000. The cash flow value was $18. Had margin been against $18 instead of $80 the bubble in tech stocks may never have happened. Also in 2002, CSCO was at $11. Cash flow value ? $18. How do the purists defend Fair Value accounting ‘allowing’ margin loans against an $80 stocks really worth $18 by conservative estimates ? Migrate this example to Las Vegas real estate in 2005 and you have the achilles heal of Fair Value accounting.

    The reverse is now happening, a downward spiral as assets sell below their intrinsic value.

    George Soros speaks of reflexivity as the main component of his investing thesis. The key element is banks lending against overvalued assets create bubbles and the withdrawal of lending against falling asset values creates the bust. A mark to model across all spectrums, Margin…Home lending etc would REDUCE the risk to our financial system and bring sanity to our financial markets.

    The real fix is INDEPENDENT firms that audit companies. Firing without cause should be eliminated when it comes to these firms. Whistleblower laws with teeth wouldn’t hurt either.

    The case is made by an esteemed former official …
    http://sec.gov/comments/4-573/4573-79.pdf

    The effects are felt …..
    http://www.researchrecap.com/index.php/2008/07/09/guide-to-interpreting-mark-to-market-losses-of-monolines/

    The proof is in ……
    http://seekingalpha.com/article/106492-toxic-bear-stearns-mortgage-paper-performing-well