Doug Short overlays the 4 major bear markets of the past centruy onto one chart. Its a comparison of today’s S&P 500, the Dow post 1929, the Nikkei post 1989, and the NASDAQ after the tech bubble:


Chart via Doug Short

Here’s another link that allows you to see the comparison by degrees.

Very nice work, Doug!


Note: Doug goes on my list of people who work on Wall Street and have and have a market appropriate name. . . .

Category: Index/ETFs, Markets, Short Selling, 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.

41 Responses to “Mega-Bear Quartet”

  1. DL says:

    Japan in the 1990’s is a better model for what is likely to happen going forward than the U.S. in the 1930’s. What I expect to see over the next several years (in the economy as well as the stock market) is some sort of hybrid between (a) Japan in the 1990’s, and (b) the U.S. in the 1970’s. I don’t see the economy of 1930’s as even an outside possibility. A nominal decline in the SPX of 80-90% is also not going to happen (the performance of the SPX in inflation-adjusted terms, however, is a very different question).

  2. jmborchers says:

    This Christmas ralley is over. Anyone else have malls around them where things are getting bought? It’s bad around Allentown area here and I mean really bad.

    I did open some puts on Friday. I’m also looking for a DITM $20 Dec put on ORCL which had a fabulous overrun of the nasdaq index. Goal for that purchase is $3.50 ($16.50 ORCL price). Hopefully stupidee and stupidum bring the market green into next week.

  3. leftback says:

    I bought some SRS on Friday in case we have a reversal on soft sales news. But I actually think that expectations are so low that we will not have a big reversal. I don’t think the year-end rally is over, although we will see interruptions.

    Having said that I am long nothing but energy/materials/precious metals here, and I like SKF/SRS and especially QID at the top of this rally as a mix of over-priced retail and technology.

  4. DP says:

    Compress the 1929 line a little on the horizontal axis and it is striking how closely the Nasdaq from 2000 onwards mirrors it. The 1929 has an extra leg down that the Nasdaq didn’t have, but beyond that even the peaks and troughs in the recovery before the next plunge a few years later mirror each other remarkably well.

  5. leftback says:

    DL sees: “some sort of hybrid between (a) Japan in the 1990’s, and (b) the U.S. in the 1970’s”

    I think this is exactly correct. A great depression scenario is off the table although the recession will be quite deep and unemployment will be nasty. But recovery will be more rapid than many expect. Ben will issue every citizen with a printing press and run them 24:7 rather than accept deflation. An overlay of the mid-70s with the present gives some clues to the likely trajectory, but you have to scale the losses in the SPX to be larger. Gold takes off pretty soon.

    By the way, Hank Paulson has one more final bailout program to announce: the Bank Lending Organization for Worldwide Monetary Expansion (BLOWME).

  6. Simon says:

    Were past financial market participants more sophisticated than today? The big May camel hump of disbelief followed by the October waterfall catch up to reality indicates to me that either current market participants or their fund managers are less savy or the media pollyannas are more influential. Much the same thing in any case.

  7. Mannwich says:

    Like I predicted last week, me-thinks the rally will continue this week on the news of a not-so-cataclysmic (and actually pretty “decent” if we are to believe early reports…not sure about that) Black Friday holiday shopping weekend. I don’t think holiday shopping will be strong all the way up to the the holidays but this will be enough to continue the market rally for now as shoppers medicate themselves with one final credit card rush to grab deeply discounted items.

    Rally fades big time towards the end of the month/early January.

  8. Mannwich says:

    By the way, I also still love SRS, SKF (don’t have any right now but will pick up some during the rally this week), and QID as well. Am also grabbing EEV and to a lesser extent, DUG.

  9. AnotherGuy says:

    It looks like the Nikkei-225 is in Yen? If this is the case the $ value does not look as bad.

    See here:*&fd=29&fm=12&fy=1989&ld=29&lm=12&ly=2000&y=weekly&q=volume&f=png&a=lin&m=0&x=

    There needs to be some sort of currency adjustments made. What about inflation? Dividends?

    Some portion of this stock market action is related to currency values, being in Canada I can see days where the US$ is up 7 percent against the CDN and the stock market is down. Everybody is saying the stock market is crashing but it’s looking pretty neutral from where I am standing.

    Is this some sort of anomaly because Canada is very resource dependent or is there more to it? Are we seeing currency follow stocks or the other way around?

  10. AnotherGuy says:

    URL got chewed up, sorry:

  11. James says:

    Ben will issue every citizen with a printing press and run them 24:7 rather than accept deflation.


    And what will be the longer-term consequence of this?

  12. DL says:

    leftback @ 3:38

    “Bank Lending Organization for Worldwide Monetary Expansion”.


  13. jmborchers says:

    James, if all other countries do this the effect is nothing. That’s what I think might just happen, nothing. Since Nixon removed the gold to paper standard it doesn’t mean we will get inflation either. Gold is up about 20% per year for the last few years. Somehow I think that will also come to an end. So far I’ve found nothing this weekend worth investing in. The only decision I could make is to trade and sell options against my positions and hope that overcomes the degrade in share pricing.

  14. jmborchers says:

    The Nikkei is amazing. In 25 years of investing in Japan it has gone no where but down.

  15. RW says:

    AnotherGuy, agree, it’s a good exercise to translate into home currency and probably not a bad idea to occasionally think of financial assets as currency proxies; I tend to gravitate to stocks and bonds from account surplus countries more these days than I used to, sometimes the country is also resource rich which is certainly a plus when commodities are more highly valued.

  16. Estragon says:


    Flipping your thought around, a US investor buying the S&P/TSX ~ six months ago has lost on the order of 50% in CAD terms, but more like 70% in USD terms. If not a crash, certainly more than a fender-bender!

  17. Estragon says:


    Normally I think you’re right to look to countries with trade surpluses to outperform, but I’m not so sure that works in the near term. By definition, such countries have excess capacity (i.e. they export the excess over domestic consumption) and slowdowns to nasty things to those with excess capacity.

  18. DP says:

    New standards for credit agencies:

    Business Accountability Standards Tracking All Rated Debt Structures.

    The standards might not stick, but I suspect the name will for many years to come.

  19. constantnormal says:

    Consider the possibility the Hyman Minsky view that these depression-style collapses are driven by excessive levels of destabilizing debt. What then, is the likely outcome from taking a system that is bent out of shape well beyond the state that led to the Great Depression — i.e., a collapse of oodles of margin debt in the Crash of ’29 — and pumping it full of debt and newly-minted money, blowing the total debt-GDP ratio even more sky-high than it already was?

    Granted, no one can say what the current state of the total debt-to-GDP ratio is at the moment, because the GDP is in a state of ferocious contraction, the consumer is de-leveraging as fast as humanly possible, and Bernanke and Paulson (soon to be replaced by Obama’s crew) are pumping debt into the system by trillion-dollar-handfuls. Not exactly the picture of an orderly approach to the problem.

    My guess is that gargantuan incompetence combined with the miracle of computerized debt/money creation will overwhelm the natural tendency of the system to de-leverage and correct itself. And when we serially attempt the same theories via an unending line of clueless economists, who are unwilling to question all that they know in the face of a Reality that stubbornly refuses to conform to their education, we will be looking at a depression that dwarfs the (so-called) Great Depression, something like the depression that followed the collapse of the South Sea Bubble, that lasted many decades. Longer than many of us can reasonably expect to live, even without our eyeballs and arteries exploding around 9:30 AM EST some Monday morning.

  20. constantnormal says:

    the second link in the above post is to the comstock chart pdf that has been referenced here so often in the past:

    damned if I can figure out how to get it to open in a browser context instead of downloading the pdf.

  21. jmborchers says:

    But where is 2007 and 2008 Debt:GDP? It must be 5 times GDP by now. But that’s not so bad.

  22. Steve Barry says:


    I too love that old Comstock NDR link…I now update it myself, using the Federal Reserve credit MarketDebt Outstanding (next report out 12/11) and the BEA GDP Release.

    As of 6/30, we were at 51.02/14.3 or 357% and climbing.

  23. ec2046 says:

    RW – That’s pretty insightful. I kept wondering where this inflation was coming from, how to observe it, or be informed on it, and I still don’t know where to look. I kept thinking and reading. I saw form a commentator on YouTube that the Treasury has a bunch of 2-Years coming due: so, I thought the Fed would run the printing presses because the Fed gov is underwater right now.

    But, it would make sense that if the indices fell correspondingly to some impending inflation, then it would have already been priced into our markets?

    I mean: if the number of shares of a company are fixed, then the only variable is price – which is in dollar units.

    Does this add up?

  24. ec2046 says:

    Hey Constantnormal – I have been reading very grim economic data and checking some stat’s. I guess our industrial base is pretty much non-existent, although I don’t know about our level of domestic natural resources. But, considering that we have been a ‘consumer-based economy’ or service oriented, I don’t see how it will be possible for us to correct this disaster. Everyone always boasted of our robust consumer-based economy that consisted of about 65% + of GDP; all of this was the result of deficit spending from capital accounts or c/o refinancings/home equity lines of credit and credit cards; who knows what else I’m forgetting.

    I also find it absolutely impossible that people on Wall Street didn’t realize they were sitting in houses of cards waiting to implode. For anyone who worked there in mid- to upper-management to claim they had no idea they were doing business well past the point of criminal negligence is completely unconvincing. The executives paid themselves insane sums with revenue and netted a negative number for years: this is theft of unimaginable proportions. I can’t believe no one is even beginning to discuss public inquiry from independent prosecutors in order to hold public trials, should they be warranted.

    They then passed this bogus debt on to the U.S. taxpayer and foreign entities.

    I have read that the Fed is not even a governmental agency. It is a private corporation! I have read additionally that it has been a common practice of those empowered over the fiat currency to commit mass theft through premeditated, calculated inflationary strategies.

    This whole experience is akin to living in The Twilight Zone.

  25. constantnormal says:

    @ Steve Barry –

    How far down do you figure the ratio has to fall before the economy is able to get up off the mat?

    WWII has muddied the data with a lotta noise, but looking at the rest of the span from the 1930′s to now, it seems to me that anything under 160% is not life-threatening to the economic equilibrium … once it gets above those levels it appears we get increasing pressure to expand the debt levels, as if the economy enters into a positive feedback loop and drives itself to destruction.

    At least that’s the picture I see from the historical data.

    The real question is how long Bernanke is going to keep applying his deeply-held beliefs from years of academic study against a Reality that has different beliefs. Traders are conditioned to throw out their own preconceptions and follow Reality — academics tend to ignore Reality when it drives in a different direction than their models indicate it ought to be headed.

    Bernanke of course has no practical experience in a trading situation. Paulson should recognize that what he’s doing isn’t working, and I kinda think he has, from his rapid-fire changes in strategies. But does not appear to have the “when Reality gets weird, step away from the table until you think you understand what’s going on” modality enabled. Paulson is simply flailing at this point.

  26. Steve Barry says:


    It appears to me that 150% would be healthy. Aside from the New Deal, which spiked up debt, and Greenspan’s Folly, it has never been above 180% or so. I have suspected for years that the process to get back from >300% to 150% would mean depression.

  27. constantnormal says:

    @ ec2046 –

    I agree that the farther we get away from a stable environment, the more severe a correction it takes to get back there. But it’s always possible to get back. We may well take the rest of the planet with us, and basically destroy western civilization (which apparently now includes the Far East), but we will always be able to start over from the sticks and rocks level, after the famines and revolutions/wars. Even a nation as ruined as Zimbabwe can recover.

    How do I see us getting there? We start by not doing what everyone here said the Japanese were doing wrong, and letting busted companies die instead of pumping money into them and keeping them on life support, clearing the economic ground for new or other companies to grow into. Yeah, it’s a hideous process, with ginormous dislocations and wave after wave of cascading bankruptcies. Unemployment soars.

    But unemployment is gonna soar in any case, it’s simply a matter of a short, sharp period of pain, or an interminable nut-crushing disaster that goes on and on and on. I read somewhere that the depression following the collapse of the South Seas Bubble in 1720 lasted 60 years. That’s what we’re looking at unless we quit trying to maintain unsustainable levels of debt.

    A good start would be to deconstruct Freddie and Fannie, into a dozen or so smaller companies (still quite large), and in the process restructuring all their ARM loans to fixed rate loans with extended terms, as Sheila Bair has been pushing for. After a decade or so (maybe more, maybe less), we release these mini- freddie and fannies into the wild via IPOs, and use the proceeds to retire government debt. At the same time we do basically the same thing to AIG, carving it up bankruptcy-style, and selling off the parts that work, and snuff out the parts that don’t work. Same thing with C and BAC, and GM, Ford and Chrysler.

    Once companies see that coming to feed off the TARP means getting harvested, a lot fewer companies would be going on the dole and attempting to manage their own reorganizations.

    Meanwhile, unemployment would, for a year or three, jump to somewhere between 10% and 20%, perhaps aided by various temporary government programs (if there can be such a thing). A massive WPA program to make the nation energy-independent by 2015 (via wind, solar, geothermal, nuclear, …) might be one way that the government could provide employment and at the same time directing our energies in a useful direction. But I don’t have a lot of hope in that area, people and jobs are too specialized these days to be plug-and-play, and such a scheme would cost money as well, money that we don;t have. But I suspect it would be less than what we’re spending now, pissing trillions into the wind.

  28. rww says:

    As job creation for the last ten years was all retail, real estate, and finance; and as none of them are likely to return any time in the forseeable future, where do the jobs come from for a sustained recovery? Where is a plausible scenario for reversing a decade of declining real wages? Really, what turns this thing around?

  29. mysterious eggs says:

    constantnormal @ 7:07 Meanwhile, unemployment would, for a year or three, jump to somewhere between 10% and 20%, perhaps aided by various temporary government programs (if there can be such a thing). A massive WPA program to make the nation energy-independent by 2015 (via wind, solar, geothermal, nuclear, …) might be one way that the government could provide employment and at the same time directing our energies in a useful direction. But I don’t have a lot of hope in that area, people and jobs are too specialized these days to be plug-and-play, and such a scheme would cost money as well, money that we don;t have. But I suspect it would be less than what we’re spending now, pissing trillions into the wind.

    Those currently/recently employed in jobs which leach off of the creative and entrepreneurial (RE, shadow banking, pharma sales, etc.) were very specialized because you had to step out of reality to be able to operate successfully. However, there are TONS of people out there who are, for lack of a better term, renaissance men. They want to make a difference but they have been marginalized by a system that frowns upon logic and critical thinking. We have to get over the nation’s desire for image over substance and push our engineers/R&Ds/scientists/inventors to work for their art rather than the marketing team’s trade show pamphlet. I’m generally pessimistic about the short term but I see mid-term recovery fomented by another NASA during the 60s style endeavor which inspires the heart-and-minds of the people. We need dreams and aspirations, not access to credit to pull the depressed americans up.

  30. jmborchers says:

    Rww: Protectionism. I think it’s the only possibility.

  31. Klueless says:

    DL, agree with your forecast.

    My first thought on seeing this chart at a different website was “Why doesn’t this guy compare NASDAQ with XLF since this is a financial crash?” It seems like NASDAQ dropped about 78% back then and XLF dropped about 77% from top to bottom as of last Thursday, so it seems like this crash has finally bottomed out. I will rule out any depression-like scenario (-89%!!!) since the Fed has made it clear that it’s not going to let that happen with it’s bailout of Citi last Monday. Since it has vastly bigger pockets than any of us, why fight against it? I got out of my shorting game and put all my cash into FAS last Thursday when every media outlet was getting hysterical about the Citi and my non-investment friends were telling me to close my account with the Citi. Will just endure some minor see-saw game for next month or two and enjoy the rocket ride to S&P 1200. Just doesn’t see much down side from here. Also, when I see so many geniuses snickering about Warren Buffet, I know it’s time to go long.

    Since I’m relatively new to the investment game, I was wondering how to invest wisely for next 5 to 10 years of economic downtime (this is my first time facing something like this) once I take out my profit with my current bet. Found this excellent advice while surfing through the internet. I would like to share with you since I got so much out of this site. Agree with the gentleman, this year and next couple of years are going to be remembered as the best time to spend, spend, and spend like a sex hungry guy in a whore house. Time to charge up big time!

    JasonC (SeekingAlpha)

    Thu Nov 6th 16:32 PM | Rating: 0 0
    Commented on:
    Don’t Follow the Wall Street Crowd – Prepare for Market Rollover
    “The real question is, medium term, where to put money?”

    It is a deflation and spreads have already widened. So you should be putting money in long term corporate bonds, and a few other similar asset classes. The principle. Then as the coupons come in, use them to average in to common stock positions, to exploit the low prices on offer. Gradually, there is no great rush.

    Finance corporates can be bought today with 10 to 30 year terms and double digits rates. Diversify by also having a 10-20% position in TIPS (yielding over 3% plus inflation adjustment), likewise in GMNAs (6%, both with no credit risk), and in floating rate bonds or preferreds (those can be bought today to yield 8% and up, and will return double short rates forever if they remain solvant). Keep a moderate position in insured CDs but don’t hoard there.

    The name of the game is simply to lend money when no one else will. Pick the credits, and go long on the terms, because spreads will tighten once this passes. Avoid “core” bond funds that right now will be stuffed full of short term treasuries bought by timid managers trying to get slightly less killed than the index.

    If you are adventuresome, you can include small positions in loan participation funds, junk bond funds, and equity REITs or REIT funds, and distressed mortgage debt. All of which could get killed, still, so these are 5% positions at most. Only even look at them if you see 15-20% yields on offer – it will take half that figure to cover the loan losses.

    Now, when you get coupons from all of the above, invest them in distressed equities. You don’t want to be defensive, don’t go looking for short term trades or try to hide in consumer non-cyclicals and health care etc. Let the mutual fund manager herd do all that. Instead buy financials, buy real estate related names, buy materials, buy retailers, the stuff smashed to heck and gone. Just don’t invest any principal in them. Only your interest!

    This will average you in to a 50-50 stock vs. bond position on the right 5 year time scale. Don’t worry about inflation. One, there isn’t going to be any for a short spell. Two, if there is, it will cause spreads to recover, your first stock purchases likewise. And three, because your TIPS and floating rate positions will benefit. Four, because you own a house (you do own a house, right?), and that is all the inflation bet exposure you require.

    This is one of the best investing climates you will see in your lifetime. But that doesn’t mean gun risk and jump in frantically, expecting it all to go straight up starting tomorrow. It won’t, and you don’t need it to, or even want it to, really. The longer prices stay cheap, the more stock you can buy with someone else’s money (interest received, not borrowings).

    As for how to buy bonds, you can get a pro to manage a bond portfolio for you by investing in an open end mutual fund like Loomis Sayles. Many bond managers have fled risk into treasuries or agencies in the recent slide, not where you want to be. Instead the sweet spot is A rated or BBB rated corporates, and LS is a well managed fund aiming there.

  32. sinful mistress says:

    All this tech stuff is nice, BUT, in real terms, as experienced through personal hardship…what is the U.S/World looking at?? It can sound apocalyptic.

  33. Boomer108 says:

    I am in the constantnormal/Steve Barry camp. We have too much debt. I believe the bankruptcy code needs to be greatly streamlined and simplified. Mandate 120 days. The gov’t can provide DIP financing if it has to. No advisers/lawyers getting rich on fees. Incentivize the free market to resolve these problems. That’s the only way out that I see.

  34. DL says:

    constantnormal @ 5:35

    The following provides data up to the end of 2007:

    * * * *

    The following provides a graph of the ratio of credit to GDP for several countries

  35. DL says:

    Klueless @ 9:13

    I’m not particularly bullish. I see the S&P dropping below 700 next year.

  36. @sinful mistress: The U.S/World is looking at a market melt-up. Apocalypse Later…

  37. Steve Barry says:

    Market “melt-up” looks to be delayed a day.

    Just heard two things on Bloomberg that would make interesting threads for Barry.

    1) Tudor hedge fund splitting into two funds…akin to “good fund” bad fund”.

    2) Despite massive losses this year, mutual fund investors will be hit in some cases with large cap gains bills as funds sold long-term winners. Mark my words…that will sour a lot of people and they will liquidate.

  38. harold hecuba says:

    i get the sense that reality has still not clicked with most investors particularly retail and long only funds. the belief is still “don’t fight the fed they are too big” this is preposterous thinking. the fed has pretty much become obsolete and what it does has had little effect on what will transpire in the coming years. most still underestimate the graveness of what will occur. this is not some normal credit correction but the bursting of multible bubbles all at once. many dismiss the great depression scenario but why? i think this cycle is actually worse and furthermore did anyone know what derivatives were back then. the only way to get out of this mess is too wipe all the bad debt clean. no fiscal stimulus no bailout no throwing money hoping for prosperity will solve this mess. rough times ahead. of course there will be rallies in this secular bear but lows of this cycle have not been seen

  39. dgryder says:

    This week is going to be critical as to whether we rally out of our recent problem or go back and test the October lows. Everything is down right now. Oil is off about $1.00 or more (note that oil moved higher after the equity markets stopped trading on Friday). The Japanese markets and the U.S. futures are down at the time of this writing. Everyone seems to be talking these markets up and I am not convinced. Admittedly, we saw stronger action last week than I had anticipated. I do believe that we will see some profit taking and I don’t expect the S&P to easily run through 920 like some of the talking heads would have you believe. I think we are in an area where the market is expecting bad news, but if we see sustained bad news, it will create a new dynamic. I think the fundamentals are getting worse by the day as world bankers continue to print money. If we start to see inflation before we see employment improve in our country then we could break 5000 on the DOW. I said IF and I don’t see it near term, but things are not as rosy as many of the pundits would have you believe.

    We have been having the inflation/deflation debate for quite some time and I thought that we would settle it with a Jim Rogers interview that was done recently on Bloomberg. I have attached it to the bottom of this post. Of note, Mr. Rogers says that at NO TIME IN HISTORY HAVE WE HAD ALL CENTRAL BANKS PRINTING SO MUCH MONEY AND HISTORY SHOWS US THAT IT WILL LEAD TO HIGHER PRICES. He talks about how low many of the commodities are and that is even unadjusted for inflation. He used the term forced liquidation several times during the interview (we only have one part posted here). I have said that we are going to see much higher prices because when this all settles out we are going to see that the forced liquidation has caused prices to over correct. The over correction will cause demand to heat up faster than normal—and the rest will be history. Mr. Rogers believes that the dollar rally has been because of so many positions being unwound. He didn’t seem to be buying into the “dollar is stronger simply because we are in better shape than everybody else” theory—even though he did say that some of the European countries are in really bad shape. He does say that a lot of other countries are feeling the ramifications of dealing with our companies. So we are having an impact, but it is in a negative way from our companies slowing down—not in a positive way because we are still so superior.

    I had planned a longer post, but I will leave it at this—watch the video and you decide!!!!
    Visit to watch the video

  40. hh,

    no kidding. I’ve heard this: ” “don’t fight the fed they are too big””, and, even: “and its a World-Wide coordinated intervention”…”any time now this puppy will reflate….”

    ya gotta love “Central Casting”, never w/o a new Script, and always with new rubes to trot out to deliver the palaver..

    People, if they want to do themselves a Holiday-season favor, should pay attention to what you’re delineating..and, for extra gifts, they should fade those fading Steve Barry, and keep an ear open to AT.