The chart below is a comparison of the current market to all previous bear markets — including Friday’s new low on the Dow.

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click for bigger chart

by JP Koning
http://www.financialgraphart.com/

Category: 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.

32 Responses to “Bear Market Comparisons, 1929-2009”

  1. Marcus Aurelius says:

    Old skydiver’s wisdom: it ain’t how far you fall that kills you – it’s the ground.

  2. mowenbrown says:

    Awesome news: we’re almost out of the woods!

  3. franklin411 says:

    Great chart! Personally, I think the bear market really started in the summer of 2006, though. Yes we had the fall rally, but that was the mother of all dead cat bounces.

  4. Mysticdog says:

    Fantastic graph! It might be the clearest comparision chart I’ve seen!

  5. Paul S says:

    It’s no small coincidence that 00-02 was the 3rd longest so far- although the recent drop into the low 7,000′s means this one will not go on much longer- maybe just another year!

  6. Good graph. Looks like we’ve gots a ways yet to go…

  7. constantnormal says:

    A companion chart for the S&P 500 would be a nice thing to see, providing a bit of breadth to flesh out the picture presented by the narrow Dow index. The NASDAQ would be better still, if only it were in existence back in 1929.

  8. johnbougearel says:

    Nice work by JP Koning. It shows the rate of change of this decline is greater than that of 1929-1932. It also illustrates how relatively young this bear market in time duration.

  9. Paul S says:

    No firm conclusions can be drawn from this plot yet, since the end point could be anywhere onthe graph, but it is certainly worth noting that a 50% decline is a significant threshold only crossed once.
    That said- my own wild ass guess is 55% for 110 weeks.

  10. constantnormal says:

    My guess is that we will not fall below 70% during this decline, with an intervening bear market rally (similar to that of 1932-1937) before we resume our descent in the 2012-2014 time frame. The overall decline of 90% in the Crash of ’29 was an overshoot due to a lot of conditions that we do not have this time around.

    It is conceivable that we might even muddle through and avoid a huge second step downward, but given the way that the administration is failing to act thus far, and perpetuating the mess in the financial industry, that seems doubtful.

    But hope springs eternal — perhaps when they finally do nationalize Citi (and hopefully BoA as well), Geithner will be invited to resign his post as Treasury secretary to personally manage the nationalized banks. It would be a fitting sentence for his incompetence to date.

    I just hope that Summers would not be elevated to fill his position as Treasury secretary (here’s an idea! have Geithner run Citi, and Summers run BoA, restructuring them and gaining some practical real-world experience with the consequences of mismanagement).

    Better to hold a national lottery to fill the post of Treasury secretary, or randomly pick a name out of the phone book. Good thing my number is unlisted.

  11. Lugnut says:

    Everybody else is just green,
    Have you seen the chart?
    It’s a helluva start,
    It could be made into a monster
    If we all pull together as a team.
    And did we tell you the name of the game, boy,
    We call it Riding the Gravy Train.

  12. Correlation or Causation Department:

    Blind Lemon Jefferson was found dead in a snowbank in Chicago blizzard in the winter of 1928-1929, abruptly ending the life of one of America’s most reknowned singers and musicians. Jefferson was one the best selling recording artists of any color in the United States during his very short (1926-1928) career.

  13. What the Fed, the Treasury and the Obama Administration have attempted is to bridle the bucking bronco that has become our capital markets. Although the markets have been under pressure as of late – it has been a direct result of premeditated ambiguity by various government officials towards the savage beast herself.

    Now mind you this type of intervention could not work in most market conditions – i.e this fall. There was far too much selling pressure to be overcome by information and rhetoric. It was man verses nature and we all know who wins that battle. Where we are currently sitting is in the doldrums of the storm. The ship is in tatters, the crew is demoralized and looking for answers and leadership. Mass psychology now becomes either the crews downfall or secret weapon to their survival. It is up to their captain to suspend the aroma of certain death and inspire a path towards safety. They just need to believe in the option of survival.

    Let’s see if Geithner can earn our respect and lead us to safer waters. I still believe this is an engineered test of the November lows. Time is of the essence to many businesses models from annuity to insurance companies and I believe the Treasury felt compelled to “induce” a weaker market in the short term to allow for a healthier market in the long term. No sustainable returns would be possible without a test of the markets lows from November.

    I am drinking the cool-aid on deck with the belief that the world is not going to hell in a handbasket. From my perspective, and ironically – there are far to many idiots on that side of the fence right now.

    My nervous system tells me I am crazy. The daily headlines tell me I am a fool. Yet the market itself seems to be broadcasting a different message –

    Buy em’.

  14. Marcus Aurelius says:

    constantnormal Says:

    “The overall decline of 90% in the Crash of ‘29 was an overshoot due to a lot of conditions that we do not have this time around.”
    __________

    In many ways we’re starting from a much less solid foundation than the folks in ’29 did. Although there are many factors involved, debt – both public and private – is the demon that best characterizes this depression.

  15. Marcus Aurelius Says:

    February 23rd, 2009 at 2:29 pm
    constantnormal Says:

    “The overall decline of 90% in the Crash of ‘29 was an overshoot due to a lot of conditions that we do not have this time around.”
    __________

    In many ways we’re starting from a much less solid foundation than the folks in ‘29 did. Although there are many factors involved, debt – both public and private – is the demon that best characterizes this depression.

    …and don’t forget demography. The population was growing explosively, both by immigration and through the birth/death rate.

  16. retrogrouch says:

    Query where do they get 2007-2009? The bear started Oct. 2008. I’m confused.

    And Mowenbrown – Out of the woods? You’ve got to be kidding! Or am I tone deaf to your satire?

  17. constantnormal says:

    My reference to the Crash of ’29 being an overshoot was in reference to “everybody” — i.e., John Q Public — being leveraged into the stock market, via 10% margin requirements, with nobody left with money/credit to buy when the hammer finally came down.

    That cascading crash was driven by debt collapsing, much the same as ours is, but back then there were no stock market circuit breakers, no PPT, no kind of insurance against catastrophe — so the plunge then went further than we are likely to see today. And their crash was driven by debt support for equities disappearing, while our debt vaporization is occurring in other segments of the economy, with the impact on stock prices being a secondary, rather than primary factor in the decline of stock prices.

    Our current debt-driven collapse is occurring primarily in the housing and financial markets, and the man in the street is not on the cutting edge of the scythe of destruction, insofar as his/her stock holdings are concerned (yes, 401-Ks, IRAs, and personal savings are being obliterated, but very little of those are leveraged at 10:1 rates).

    That’s what I was referring to when I wrote of “overshoot”. I still think that there is a lotta blood to be spilt in the near term, as most of the individual stock holdings in the aforementioned 401-K and IRA funds currently remain in stocks. When people get scared enough to finally pull those into cash, we will see a bottom that will hold for a while, accompanied by a significant rise in trading volume as the markets spike down. That’s not happening yet.

    But I don’t expect that to take us down past an overall decline of 70%, as they represent too little in the way of money at this point to have much impact in a sell-off. Most of the decline will come from valuations arriving at levels that are reasonable, a much gentler process. I think that a 70% decline would represent a small overshoot past those levels.

    Of course, I could be wrong and things could go much lower, but I tend to believe that there is some value represented by all the existing “stuff” in the world today.

  18. retrogrouch says:

    Oh god can I delete my post? You’d think I’d know better. I cashed out Oct. 16 07 and stayed out since. I just misread a table. Arg.

  19. DKTrader says:

    Anyone getting ready to go long for a bounce trade? I’ve got to think that 7000 should hold for a few days anyway.

    AT – What do the technicals say (besides freefall!)? When would be a good time to step in?

  20. polarbear52 says:

    That chart is nothing. The plunging value of the USD over the last 7 yrs vs the metal of kings masks the true damage. Run a ratio chart using the Dow vs Gold over similar time periods. The mkt will bottom when the Dow to Gold ratio is less than 5, but more likely closer to 2 or 3.
    The bear market started in 2000, but Mr. Bubbles fooled 99% of the investors with his easy money policy. The good part is that we are half way through the bear cycle.

  21. texasradio says:

    @constantnormal
    Agreed that the leverage was an issue in the initial decline, but think that the next leg down – july 30 to july 32 – was due to earnings destruction and liquidity needs. You think people were able to stay levered up all the way down?

    I like to think 70% is the number we see this time but that may be wishful thinking on my part. Maybe we set a new record.

  22. polar-

    w/this: “The bear market started in 2000, but Mr. Bubbles fooled 99% of the investors with his easy money policy. The good part is that we are half way through the bear cycle.”

    nice point, maybe one day peeps will remember that nominal ‘dollars’ don’t “bring home the bacon”..

  23. Pool Shark says:

    Sorry Barry,

    Looks like that chart is already out of date….

    Better mark that 2007-2009 bear market line down to -50% as of today’s close.

  24. rktbrkr says:

    Constant,
    Actually the homebuyers in the post 2000 era probably have/had less equity in their homes than the margined stock buyers in the 20s and the mortgage holders, unlike the stockbrokers can’t liquidate them. Sooo the home price decline, which already rivals the depression, could have a more profound effect than the depression. The average American’s stock holdings in 2008 is also much more extensive that it was 80 years ago, especially considering pensions and 401Ks.

    A 70% decline from 14000 takes us to around 4300 which is about a 40% decline from this mornings open, OUCH.

  25. lfhill says:

    The validity of this chart depends on who picks the start date. Is it just the down-turn or the whole business cycle. From the legnth of time, it looks like just the promenent down-drafts were picked. Now the question is; are these down-drafts representative of where we are now?

    I like Mark’s and PolarBears answer above that the business cycle started turning down in 2000. This is also what Russell Napier; “Anatomy of the Bear”, suggests and that large down-turns average about 14-years or so. That would mean we should see this ending about 2014 if we don’t screw it up and keep the zombie banks alive too long.

    TTFN

  26. usphoenix says:

    IMHO we can simplify the debate. Taking it back to the most important Depression factors.

    Are the people in power/control/with more than enough money, happy with how things are?

    Do they want more? Can they hope for more? Well yeah. I guess the bailout and stimulus are going to pad a few pockets. And how much more do they want?

    I am reminded of my parents statement, that during the Depression, people with money lived extremely well.

    So what’s the limiting factor here? They are obviously in control. Either they believe they are in control and can continue to control things to their satisfaction, and feed on tax dollars, or they have some notion of social fabric and concept of civil violence, not that I’m an advocate. But the majority of voting age citizens alive today do not understand how much violence America has experienced in the past.

    I have to remind myself on a regular basis, that the vast majority of American voters are not old enough to understand the civil discord the Vietnam War and the draft caused. Only after the song: “I’m not no Senator’s son”, and other important moves, did our government figure out it was an unsustainable social situation.

    Nor are today’s citizens old enough to remember Watts. Well I guess today Watts is an everyday event in some cities.

    Those baby boomers with anything of a stock portfolio have been co opted into a fearful position that the government has to save their portfolio. Really, really bad idea. You, my friend are responsible for your choices and actions. I have been warning people off Wall Street for decades.

    Well hey, it’s not important. We can now bring the military in on things as long as there’s a reason to believe there’s a terrorist in the haystack. And I guess the aviation charges have proven it’s pretty easy to declare anyone expressing their Constitutional freedoms a terrorist.

    Sorry. And not. It was real time work through. And the bottom line is that until the people in power feel threatened and unable to sustain their gated community safety, nothing much is going to change.

    Business as usual. With taxpayer dollars. As usual. And so exactly where did we lose the tea party notion: No taxation without representation?

  27. Clem Stone says:

    I must have had a bad dream in 1987 because i’m not seeing it on that chart. Either that or i need glasses. If memory serves, it would have put all those others to shame in terms of rapid descent.

  28. Michel Caldwell says:

    Thanks for the informative graph. A couple of points. The DJIA currently contains the following stocks:
    American Express, Bank of America, Citi, GE, GM, and JP Morgan. These are not quite the blue chip stocks that the DJIA had in 1929-32. It would be nice to see comparisons of the S&P500 or other larger indices. Yes, things are different. Back then, many people grew their own food, FDIC, social security, and other safety nets didn’t exist, most people had their money in small local banks (which may have invested in a stock market that wasn’t supposed to ever go down) rather than too big to fail international institutions. Thus today is at best a rhyme rather than a repeat. The importance and significance of these differences, I’ll leave to the reader’s judgment.

  29. H.T. says:

    @ Constantnormal:

    Do your own homework. In fact, the Great Crash was essentially a rich man’s crash; only ~1% of the population owned stocks in 1929, v. 60% today.

    Further, the real estate bubble at that time was small [Florida coast line], focused on the wealthy etc, unlike the huge losses, sweeping in scope, suffered today.

    Additionally, there were not “creative” financial instruments to aid today’s consumer “have it all” as before. Again the population then was fundamentally different.

    Last, we were on the gold standard, and were a creditor nation, not the worlds biggest debtor as toady.

    On the positive side, we didn’t have safety nets like we do now ['Greta Society' legacy programs]

    @ Barry–I think you should post my white paper on the “then and now.”!

  30. H.T. says:

    That’ Great Society… And the underlying point is the systemic damage is arguably vastly larger than then.

    BTW, Bush/Obama are essentially following Hoover’s lead. Hoover was in fact a Keynesian, and it wasn’t until later protectionism and an ill timed drive to balance the budget came online. Oh–that’s what Obama is talking about now…

  31. MFO says:

    The Big Question for the Big Picture is … from those bottoms depicted in that fantastic chart, how long until the previous peak value was hit again, for each datapoint? If I’m not mistaken, it took about 25 years from the bottom of 1932 … and how long, if we’re at the bottom now, until DOW 14K+ again?

  32. rmcginty says:

    What can be done to rebound confidence and begin a new era of boom? I`m no economist, but here are a few suggestions:
    Tax incentives /Tax Breaks/ Tax Subsidies for all corporations companies and individuals big and small for energy conservation, photovoltaic,solar water heating,hydrogen fuel cell and electric automobiles.(not just to “those who qualify” under IRS terms, Global warming and the economy have no preference who gets the tax breaks… why should the IRS).
    Hold the American Auto industry to their promise of new fuel efficient vehicles… OR… NO MORE MONEY!!! (They be asking for more soon)…..The economy won`t be as bad as many think should US Auto companies break into smaller companies and foreign manufactures continue to thrive right here in America.
    FED…FED…FED…Where are you? Just lower the rates to between 3-4% flat “Fixed 30 yrs”…You`ll set a wild fire under every home owner in America to Re-Fi and move so much money back and forth for remodeling, new construction and home buying that the Housing Market will look like a tazmanian devil moving at warp speed… (and if the banks don`t climb aboard with good loans for those who qualify, then restructure the Bail-Out and demand all the money back the Bush Administration gave them!!!)