Fantastically interesting chart from technician Louis Yamada showing the details of 1938 rally and beyond.

Louise notes that “It is almost uncanny the degree to which 2002-08 has tracked 1932-38.” The structural bear market, according to her, is less like my favorite analogy, 1966-82, and more like 1929-42. (Doug Kass has also mentioned the 1938 parallel).

My own view is the current market environment is more similar from a psychological perspective  to the 1966-1982 secular Bear market than 1938. I have 2008 = 1973 in terms of depth of sell off (but twice as fast). The rally in 1974 was almost 75%.

The psychology is a factor driving the pros and mom & pop alike. There still remains excess animla spirits that may need a good ringing out, a Death of Equities moment.

The parallels to the later days of Viet Nam (Iraq) are there, the run up and down in price of Oil, Nixon (Bush) as a terribly unpopular president  — these are simply too similar to ignore.So too the massive profit destruction from highs just a few years prior.

On the other hand, the degree of despair, unemployment levels and homelessness is far far away from 1938, and much closer to 1973. Other difference: The impending entry in WWII, the massive social dislocation on Main Street, the lack of safety nets of any kind.

Regardless, it is a fascinating disucssion worth delving into further.

Here is Yamada’s chart:


chart courtesy of Barron’s


So the dot-com collapse parallels the Great Crash and its aftermath, followed by a rather nice recovery in 2003-07, similar to 1933-37. The parallels continue, with the collapse from late last year into this March tracing a similar, sickening trajectory to late 1937-38, as illustrated in Louise’s chart nearby. That drop led to a strong reaction rally, not unlike the current one, for a total gain of 60%. But that was broken into three segments: an initial rally of 46%, similar to the move from the March lows. Then we saw a 10% pullback, not unusual in a rally, then another gain of 22%.

From there comes the hard part. Starting in November 1938, there was a 22% drop, qualifying for the 20% rule-of-thumb definition of a bear market; then a rally of 26%, fitting the definition of a bull market, into the fateful month of September 1939, the start of World War II.

Then came a series of bull and bear trades — down 28%, up 23%, down 16%, up 13%, and the final decline into 1942 of 29%. After this nauseating roller-coaster ride, the market was down 41% from the 1938 highs (analogous to where we are now) to the 1942 lows.”

Interesting stuff . . .


Market Rally: 1974 or 1982? (May 5th, 2009)

S&P500 Percentage Swings (April 3rd, 2009)

1966-1982 Trading Range (December 29th, 2005)

Do Be Wary of Green Shoots
Barron’s May 25, 2009



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.

83 Responses to “The ’38th Parallel”

  1. ben22 says:

    Def. agree with this:

    The psychology is a factor driving the pros and mom & pop alike. There still remains excess animal spirits that may need a good ringing out, a Death of Equities moment.

    Regardless of how similar the charts look there seem to be two major differences.

    They would be debts, and credits.

  2. franklin411 says:

    Hmmm….what could explain the fact that the market bounced around after 1939? We must look to the technicians for answers.

    On a totally unrelated note, I was watching the History Channel the other night. Seems the Allies really got the stuffing kicked out of them from 1939-1942. I’m sure that’s totally unrelated…

  3. super_trooper says:

    Yes, bring out the speculators. Let me wank off for a sec too, you could go back to the fundamental issue underlying the current crisis, the collapse of the financial market, hence this is more like 30′s than 70′s.

  4. super_trooper says:

    @ franklin411 did you miss your history class back in high-school? Or are you just exemplifying the status of the US education system. I certainly hope the History Channel isn’t your only source of information when it comes to the past.

  5. Swampfox says:

    Leave franklin alone. Maybe he went to the same California high school I attended. There, one history teacher told the class that WWII started in 1942. Lovely.

  6. Cursive says:


    Franklin, the Allies got boot stomped because they were ill-prepared for war. Once the industrial might of the U.S. was engaged, post Pearl Harbor, it was downhill for the Axis. I read a lot of comments on this board about the high levels of defense spending. Well, there are plenty of extra-constitutional measures that the USG has undertaken since the FDR administration, but providing for our common defense is specifically called for in our constitution. Now, if we could get rid of the so-called social safety net, the FR and federal spending on everything under the sun.

  7. Cursive says:

    I don’t discredit the comparisons of the current market to either 1929/1942 or 1966/1982, but it amounts to a lot of white noise. In the vein of history doesn’t repeat itself, but it does rhyme, we will see something similar, but wholely different. I find it easy to tune out the white noise with this exerpt from the story:

    WHAT IS LIKELY TO DISAPPOINT THE BULLS is the pace of recovery in corporate profits, according to the perspicacious Smithers & Co. of London. Earnings per share — the sustenance of equity investors — will be hampered by punk economic growth ahead and the need to repair corporate balance sheets.

    Investors had come to regard the record profit margins of recent years as the new norm. Last year’s were above average, despite the general perception they were squeezed.

    Profits typically grow when the economy is expanding above trend, and vice versa. With U.S. growth likely to stabilize at only 1% into 2010, the outlook for earnings is apt to be, in a word, lousy.

  8. franklin411 says:

    Oy! Sarcasm is a lost art, apparently!

    BR: Note the following–The 1938 peak in this chart is contemporaneous with the Munich Agreement in September. The 1939 bottom is contemporaneous with the German violation of the Munich Agreement in March with the invasion of Czechoslovakia. The 1939 peak is contemporaneous with the German invasion of Poland in September and the beginning of WWII (which nobody thought would be as large or as long as it was). The 1940 collapse is contemporaneous with the fall of France in June. The 1941 peak is contemporaneous with the passage of Lend Lease, which no doubt was expected to stimulate American industry. It also coincides with the invasion of Russia, which many observers saw at the time as Hitler’s great mistake. The 1941-42 slide was contemporaneous with the US being beaten back all across the Pacific, as well as the renewed German offensive in North Africa under Rommel. The rally in 1942 coincides with the Battle of the Coral Sea in May, which turned the Japanese back for the first time in the war. This was followed by the Battle of Midway one month later. Also, it was clear by early 1942 that Operation Barbarossa had failed.

  9. TapeReader says:

    A couple of thoughts:

    These comparisons are made on data samples that are ridiculously small.

    If there have been a handful of multi-year carnages of the stock market over the last 100 years or so…that is not enough of a sampling to draw any conclusion except that even attempting to project next month’s or next years S&P 500 closing price from this small set of examples is a fool’s errand.

    As for the pros and Mom & Pop leaving the market for greener pastures, I think that there is a large and growing community of algorithmic trading shops, both of Mom & Pop stature like and of larger ilk that make money regardless of where the market goes.

    I think that the algorithmic trading approach will be Standard Operating Procedure for all trading…this will leave the only other market participants to be Investors (note Traders trade and Investors invest – let’s be clear that these are two distinct activities that somehow, surprisingly, get confused by most market participants) – who will in all likelihood be plain old Value investors.

  10. Marcus Aurelius says:

    The last place anyone should go to learn US history is an American public school classroom.

    MISH has some very interesting video links up, today. Watch the second one and wonder if this will ever be taught in American History classes.

  11. seneca says:

    In 1942, the dividend yield on the S&P500 approached 9 percent! That’s dividend yield, not earnings yield. At the 1974 bottom, the dividend yield approached 6 percent. So investors made decent returns back then even as the indexes churned sideways. Today’s dividend yield on the S&P500: 2.6 percent. That’s less than at the 1987 pre-crash peak in the stock market. So comparisons to previous historic lows in the stock market miss a key point: there is no compelling value in this stock market taken as a whole, except relative to the hyperinflated prices of recent years.

    Historic chart of dividend yield vs S&P500:

  12. Cursive says:


    Yeah, I caught those earlier and linked to them in the other thread this morning. It’s horrific. The “no notice” eviction where the residents only had the time that it took the locksmith to change all the locks to remove their belongings. On top of that, the residents were renters – they were cheated by an absentee landlord and had no idea that the mortgage was in foreclosure. The guy, in the baseball cap, at the end talking about how bad the economy was and what people would do to feed their kids. This is very disturbing.

  13. Bob_in_MA says:

    The period 2002-2008 parallels that of 1932-38…

    Well, sure, except when was a period of 20-25% unemployment stagnant real estate and commodity prices, and the other 5% unemployment and bubbles in real estate and commodities…

    Oh, and in one households were forced to deleverage, with debt/income falling rapidly, and one involved a massive buildup in household debt….

    Do the people who come up with these idiotic charts ever visit the planet earth?

  14. Cursive says:

    @TapeReader 11:56

    Given that this is a casino, I look at everybody as a “market participant.” There are no “investors” anymore or, if one classifies oneself as an investor, one is probably assuming much greater risks than one understands. To begin with, one can’t “invest” when macroeconomic events are so destabilizing. Anything could bring this house of cards down. Moreover, an “investor” should be able to, at a bare minimum, explain how a company makes money, the risks to that company’s business plan, be ready to attend the annual corporate board meeting, be able to name every major division of that company and the names and positions of the executive management team. There’s more, but I’m being brief. I doubt 99% of “investors” could do that.

  15. Cursive says:

    Something is wrong with Word Press this morning. My posts are being eaten and posts are jumping around.

  16. Onlooker from Troy says:

    As others have expressed, I have great problems with these simplistic comparisons of periods of the markets based on similar looking charts. You really have to compare other significant factors such as market valuations, private & public debt levels, global economic conditions, etc., in order to even start this exercise.

    That’s very difficult no doubt, but I think you can get into great trouble using this kind of thesis as a guide. That’s what bothers me about Kass’ analysis of late.

    Maybe it will play out this way; who knows? And I think it can be helpful to look at history and try to find parallels that can be instructive. But to ignore the most significant factor going on right now, that of a huge, global debt deflation, is foolish. That, more than a similar looking chart, will show the way. And the job destruction is a compounding factor, of course.

  17. mhm says:

    The similarities end at the shape of the curve. In a word of leverage, high frequency trades, enhanced liquidity (SLP) and ˝money˝ printing to avoid deflation there is no reference in economic history. Not even the tried and true price/volume chart is reference anymore. Volume break out you say, how much of it is SLP?

    Paraphrasing a guy on Bloomberg this week, this is a crazy market and the sane people are leaving.

  18. ben22 says:


    Based on your post at 11:40 you seem to be figuring out that the market has much more to do with psychology than it does any fundamentals. So, I have to ask, why do you keep then trotting out things like CEO statements about how things are getting better and constantly rambling on about green shoots?

    Maybe on your college campus kids are having a good time playing flip cup and doing keg stands but adults are worried about getting by. Do you really think most people are optimistic right now? Not trying to be a jerk, just curious where your head is at with this.

  19. Onlooker from Troy says:

    With that said, I agree with the conclusions of Forsyth’s article. It’s going to be a dreary time for quite some time. The market’s going to wake up to that eventually. But denial and delusion are apparently very strong right now.

  20. usphoenix says:

    @seneca: Nice work providing the dividend numbers. Thanks. Really tells the story doesn’t it. BTW What was the date or period for the current dividend number of 2.6%?

    The mythology today is companies should reinvest earnings instead of declaring dividends, when what they are really doing is artificially inflating earnings with accounting trickery and hollowing themselves out by liquidating assets, including employees – though most must consider them liabilities, at least they’re the most liquid -goodbye.

    The other problem today I can’t comment on is there has been so much money looking for a home that corporate prices have been bid up. Now it seems to have migrated from M&A to taking companies private.

    Anyway, I’m basically agreeing with findings, just trying to expand on them.

  21. ben22 says:

    To take this further:

    What was the DOW priced in Gold then?

    What was the personal savings rate then?

    What was the average household credit card balance then?

    What was the total debt/gdp then?

    What was the average household debt burden then?

    What was the portion of income used on needs based items (health insurance, food, energy, etc.)?

  22. Cursive says:


    I agree with you on deflation. We have barely started any sort of meaningful deleveraging. Steve Barry so aptly points out that total debt to GDP is still roughly 370%. Regardless of the events of the last 12 months, the ratio hasn’t really changed. The consumer savings rate has yet to stop it’s inexorable climb, unemployment will continue to climb, residential and commercial property values will continue to fall and there is much more debt to be unwound. I have no doubt that there will be bouts of an “inflation trade” over the next decade, but I believe that these instances will be self-propogating. We have mountains of debt to erase and we have yet to start. It’s deflation as far as the eye can see.

  23. ben22 says:

    oh, one more,

    What portion of our GDP was based on consumer spending then vs. today?

  24. Cursive says:

    @ mhm

    “Paraphrasing a guy on Bloomberg this week, this is a crazy market and the sane people are leaving.”

    I had a similar thought that I posted in response to TapeReader, but Word Press took it to Blog Heaven. The takeaway is the anyone left in the equity or bond markets these days is speculating. This is a rigged casino, not an investing landscape. Participate at your own risk.

  25. Mike in Nola says:

    Why does people keep saying we’ve already made it to 1938? As Hugh Hendry pointed out a few weeks ago, the markets continued to decline for years after the great crash, but each year there were rallies as strong or stonger than the current one.

    This comparison with 1938 sounds like the arrogance of those who think they’ve avoided the consequences of a bubble bursting without actually fixing the underlying causes.

    Even if it was brutal, the Great Crash and the succeeding depression did correct a lot of economic distortions, e.g. the huge US trade surplus, Europe’s corresponding deficit, and the stock bubble. The economy in 1929 was unsustainable and it crashed. This is just part of the natural economic cycle.

    What has happened since the unsustainable world econonomy finally started to break in 2007?

    As many here and elsewhere have pointed out, all that has gone on this time is the propping up of an economic system that is not viable without restructuring it. There is still a huge amount of bad debt on the balance sheets of the banks. Smaller banks claim to be in good shape, but many of their loans have not even been recognized as going bad yet, e.g. CRE that are still interest only and being ignored, plus the residential mortgages that are still to reset. Consumer debt is still huge. An unimaginable pool of credit default swaps is still out there. Yet nothing much has changed in the minds of the central bankers: it’s not a solvency problem, it’s a liquidity problem.

    Central banks have only prevented an economc collapse by creating new distortions in the form of tremendous expansions of the balance sheets of central banks. Nothing has really changed in the economic models that they are trying to sustain.

    If one is simply comparing time scales after a market peak and the start of a crash, we are only in early 1932. Yet we have gotten there without any real cleansing of the system: the Fed and Treasury are trying to reinflate the housing and debt bubble that got us here with their stupid efforts to support house prices and by supporting the zombie banks; nothing is written off. China is continuing to support it’s export industries and is importing commodities like it actually has a use for them in manufacturing. Speculators are driving up the price of oil while demand is falling and there are many ships acting as storage tanks parked in coastal waters here and in Asia. Turn on CNBC and it’s clear that almost none of the financial moguls get it.

    We ain’t to 1938 yet; we ain’t even to 1932.

  26. Cursive says:

    More posts lost. Anybody else having this problem?

  27. Cursive says:

    @ mhm / Onlooker / Tape Reader

    If you get this, I enjoyed reading your posts. I tried to respond, but have lost 3 posts. Some go through, others to Blog Heaven.

  28. ben22 says:


    I’m not, but it seems like a lot of people have been saying that lately. Are you on a Mac? My office computer is an IBM, there I have issues, on my Mac though no problems. Who knows.

  29. franklin411 says:

    I keep trotting out facts to counter bearish emotion. In the world I live in, facts trump emotion every time.

    As to sentiment, there is no doubt that most people are more optimistic now than they were 6 months ago. The reason the bears can’t get this through their head is that they believed their own propaganda–that the economy was finished, permanently and forever. We would drop to 100% unemployment, and then we’d slice right through that until we were counting the dead as unemployed too! People would be reduced to a post-apocalyptic existence in which finding food and water was our primary daily concern and the living would envy the dead.

    Well, it didn’t come true, and it isn’t coming true. Things are horrible–the worst any of us have ever seen. But the world isn’t ending. There will be a dawn. Growth will return, someday. Things are better now than they were 3 months ago. People don’t expect a new golden age overnight, but they can see that this too shall pass.

    This too shall pass–a simple truth that is considered blasphemy by the bears.

  30. WaveCatcher says:

    I am fascinated with the seeming parallels between this market melt down and the prior ones. It is good to have all the possibilities in my consciousness, but I have found it is most profitable just listen to the market and align my capital in accordance with the prevailing conditions.

    I’ve given up on trading the short-term trends (too much time required in front of the screen) and also given up on long-term investing (buy-and-hold has proved itself to be a failed strategy). This leaves me with the intermediate-term trend (weeks to months), which I’ve found is driven predominantly by trader sentiment.

    My approach is boring, but it has yielded me +17% returns over the past 52 weeks. I am satisfied with these modest returns considering that the S&P 500 is down -38% over the same period.

  31. ben22 says:


    Real nice post.

  32. Cursive says:


    Windows XP. The day that Microsoft makes something that doesn’t suck will be the day they start making vacuum cleaners.

  33. franklin411 says:

    We are not in 1938, certainly. Neither are we in 1932. I would argue that we are in 2009.

  34. Cursive says:

    @f411 1:17

    Maybe you are the one so happily ensconced in the “bubble,” i.e. the bubble inside reality. Maybe you should get out more. I live in a small, podunk town in Louisiana. At least 40% of our employment can be directly tied to federal, state or local government or hospital employment. The only other major employer around here is a regulated utility. These are “safe” industries and usually we do not experience most national employment trends. Well, things here are not good and are getting worse. I can only imagine what it’s like in the former boom regions.

  35. Cursive says:

    @f411 1:28

    I would argue that you probably meant to reply to Mike, not Mark. Maybe this was more of your sarcasm from earlier.

  36. ben22 says:


    now I get what you are all about.

    A couple things.

    1. CEO statements aren’t facts buddy. I’m not sure what “facts” you are even talking about. You responded to me questioning you a few weeks ago by posting about 20 quotes from CEO’s. I hope you aren’t investing based on what they are telling you. After all, BAC had a “strong capital position” last spring didn’t they?

    2. You live in your own world if you think facts trump emotion. But just for fun, what were the facts that drove the DOW to 14k in October 2007?

    3. Everyone thinks a bear is someone that predicts doom and gloom. That’s not right. A bear is simply someone that thinks the trend of prices will down for some period of time. Use Barry as an example, he flips back from one to another when he sees fit. If that “bear” is right, they produce anything but doom and gloom, bears produced a sense of calm for clients in the last year by reducing risk to near 0. IMHO it is people that are always bullish that create the real doom and gloom. Telling clients to always buy and hold no matter what,always talking about the green shoots that will make things better. This is why CNBC treats bears like troublemakers. Did you ever see the video of Michelle Caruso Cabrera grilling the hell out of Roubini and Taleb, pressing them for stock tips?

    If you can find the book I would suggest reading:

    Mackay, Charles, Extraordinary Delusions and the Madness of Crowds

    don’t think this current optimistic stance can flip on a dime.

  37. ben22 says:

    one last thing, I never saw a single bear claim unemployment was going to 100% nor did I see them discussing finding food and water as our new primary daily activity. Perhaps I just missed those letters or interviews. Don’t confuse some silly comments on a message board with people actually making educated comments about the markets.

  38. call me ahab says:

    using logic-

    trolls create flame wars-

    franklin creates flame wars- therefore-

    franklin is a troll

    advice- and I know it’s hard- but- don’t feed the troll

  39. I-Man says:

    There was a time that I despised Louise and her cold, direct, TA. She always seemed to be throwing cold water on the party.

    But I never once made a dime fading Louise Yamada.

  40. franklin411 says:

    Yep, you’re right–I meant Mike.

    1. There is no single fact or set of facts that tells the whole story. Facts are like an impressionist painting. Each one is a dot of pigment, but viewed together they make a picture (usually with some degree of interpretation!).

    2. Bulls are equally vulnerable to ignoring the facts. The only difference is that there seems to be social interpretation that holds that unjustified optimism is recklessness while unjustified pessimism is sobriety. That is wrong, because it’s irrelevant whether money is lost through bullish or bearish recklessness.

    3. I wouldn’t put Barry in the permabear category. For one thing, he has shown a willingness to concede that the data is coming in better than expected. I have no respect for those who simply reject the data with a wave of the hand as some sort of conspiracy, without proving that the data is wrong. That is simply tinfoil hat lunacy.

  41. DL says:

    The secular bear has a long way to go.

    Forget about “buy and hold” for the next several years.

  42. guru says:

    It’s nice that you’re pointing to the similarities of today’s situation with that 1973: “The parallels to the later days of Viet Nam (Iraq) are there, the run up and down in price of Oil, Nixon (Bush) as a terribly unpopular president — these are simply too similar to ignore.So too the massive profit destruction from highs just a few years prior.”

    But where were all the pundits last March warning us of the impending Crash. I wrote about it on March 1, 2008 in

  43. ben22 says:

    Franklin Says:

    The only difference is that there seems to be social interpretation that holds that unjustified optimism is recklessness while unjustified pessimism is sobriety.

    Again, Franklin, if you think any bears are unjustified in their current concerns, you are truly clueless. Are you even serious about coming out with the “better than expected” meme? Better than a bunch of analysts expected? Have you ever seen them get a number right? Further, it seems you have someone like Roubini in mind when you talk about permabears,… he doesn’t even manage money. Again, the one’s that were most reckless were the Don Luskins of the world, telling you to buy, all the way down.

    Your facts statement, you are talking out of your ass. Sorry.

    Clearly I’m just wasting my time here so I’ll just take your side so we can end this:
    I went to Lowe’s about an three hours ago to pick up a few things for the house. It actually was very busy today. I also noticed a line at the McDonalds drive through. Green Shoots Everywhere!!!!

    I won’t mention the fact that my state has had very little downturn in RE, far lower unemployment than the national average, a low cost of living, and a very high household income. I’ll just go with the crowd at Lowe’s being better than I expected.

  44. Mike in Nola says:

    Ben22: Thanks for the compliment. Embarrassing that the first line has a typo. WordPress sucks as an editor.

    F411: Your sarcasm radar apparently malfunctioned there. I was responding with sarcasm (and backing it up with some logic) to the baseless emotions that many have that we are almost out of this when most of what’s wrong hasn’t been touched.

    From an interview by Shiller about the UK, but applicable here:

    “We all want to lick this problem — there’s been a burst of confidence over the last few months, but really it’s not based on any news. A lot of people think this recession is coming to an end. But I’m not so sure. A resurgence in confidence may not translate into new jobs. We are still in uncertain times.”
    “In 1931 in the US, President Hoover unveiled his recovery plan – there was a huge stock market rally — the market improved but it didn’t hold because bad news kept coming in. Increased confidence can be a self-fulfilling prophecy but it doesn’t always hold.”

  45. ben22 says:


    who cares about the typo. We got your point. I make more typos on here than probably anyone.

    You also just made my point about emotion.

    I meant to say above.

    Don’t think the current optimistic stance CANT flip on a dime.

  46. Mike in Nola says:

    Cursive: What browser are you using? I haven’t been having trouble. Of course, I’m using Vista and IE8 :)

    I think it’s more likely a site problem or ISP problem. Some ISP’s cache sites to save bandwidth and $’s. This sometimes screws up and you see a copy of the site that is not current.

  47. call me ahab says:

    I use chrome- no problems here

    als0- I am an optimist-

    I am optimistic that Americans will realize that shit ain’t right- and act accordingly

  48. DL says:

    call me ahab @ 2:31

    I’m optimistic that the “market gods” will throw the bears a bone before long.

  49. thetanman says:

    DL ect al,

    There is a large H-S on the transports, and no one is talking about it. There are also H-S on the 15 min on all the major indicies, but the one on the DJTA is much larger and started forming first on Apr 21.

  50. dead hobo says:

    BR pondered:

    The psychology is a factor driving the pros and mom & pop alike. There still remains excess animla spirits that may need a good ringing out, a Death of Equities moment.

    Mom and pop already get it. Their decimated 401Ks and IRA accounts explained it to them quite well.

    The ones who don’t get it are the “pros” (Ha Ha) who still think

    1) This is just a downturn and it will bounce back like all others

    2) “We get it but mom and pop don’t because we’re professionals who do this every day and a lot smarter than most people”

    3) Asset inflation doesn’t really exist, prices rise because of demand issues -> high oil = economic recovery

    4) Employment is always bad before and immediately after the upturn. Employment is bad so we must be in recovery.

    5) Crooks really don’t exist in large quantity in enough concentration to manipulate anything. People who think that are just mad at themselves for missing out on this great rally.

    Tis could go on, but the point is that the professionals have not capitulated. They probably won’t either, at least publicly, as long as some fee income is potentially available and Uncle Stupid provides enough liquidity to maintain the Obama Put.

  51. call me ahab says:


    I hear that- should be soon- I’ll be patient-

    should have listened to Kass for the short term bull ride which I missed out on- and- had intended to buy F when it dropped to a $1-

    but- went up to like a 1.5 or so the next day or two- so decided to wait until it dropped again- instead now at +5-

    same thing with HOG-

    missed opportunities

  52. ben22 says:


    I can see that, though, like you say, it’s a lot clearer on the $TRAN, care to make any predictions?


    You are right, betting against Yamada isn’t typically a very good idea. I haven’t heard much commentary from her recently. I know she was very bearish before. Has she flipped. I’m not sure that’s what is being said here, I’m reading this more as there will be great opps for traders moving forward, but not so much for the buy and hold crowd, as someone wrote above, where are the dividends?

  53. Swampfox says:

    Franklin, the world never ends. Lives, companies, families, systems, economies, nations, empires, peoples, etc. are the things that end. Something always takes their place. It’s the transition that’s a nightmare and that’s what the bears are concerned about. Sure, it’s 2009. Nothing is going to be exactly the same, but one can see similarities between now and other times in the past. Generally, this level of debt brings nothing but disaster.

  54. call me ahab says:


    c’mon on man- don’t you understand that the sun will come out tomorrow- it’s all good and only going to get better and better and better- i am tingly

  55. Mike in Nola says:

    Interesting post from Zerohedge about the inevtiable. At least King Canute was acting tongue in cheek:

  56. ben22 says:


    that’s a long article. It only needs to be two words:

    credit deflation.

  57. DL says:

    thetanman @ 3:00

    “There is a large H-S on the transports”

    I’ve been watching that over the last few days. A decisive close below 3000 would be difficult to recover from. IYT might be a good short here.

    (At the same time, some index ETF’s like EWZ and OIH are still strong)

  58. Swampfox says:


    Thanks for the reality check. I just gave my savings away to Save the Puppies. Now I’m going to go sit in the sun and feel good about life for at least the rest of the afternoon.

  59. DL says:

    ben22 @3:43

    “Credit deflation”, yes. But I think that $USD can drop below 72 within a year.

  60. ben22 says:


    we’ll see if you are right on that call. I think you already know but I’m in that oddball camp with the dollar thinking it goes up in the next 12 months.

    Are you thinking credit deflation, hard asset inflation?

    Someday, who knows when, the dollar will be viewed as what it always was, worthless paper.

  61. Mike in Nola says:

    I’m in Ben’s oddball camp. Assuming we are correct, more crashing of equities and commodities (that’s what deflation is) and another flight to treasuries.

  62. The Curmudgeon says:

    There is a difference between 1938, 1973, etc., and 2008/9: Demography. Ex-immigration, the US and Europe is aging and dying out. Japan, since it allows no immigration, will cease to be within a century or so if present trends continue. Even China is aging and dying, as their one-child policy of the 70′s and 80′s comes to fruition.

    Aggregate growth in earnings upon which the stock markets depend, are themselves dependent on expanded markets/demand, which are in turn, dependent upon population growth.

    The bulk of population growth today comes from Arabia and sub-Saharan Africa.

    These are facts that make suspect the premise (i.e., continued growth in markets due to continued population growth) upon which the developed world’s economic systems are built. This is significantly different than any prior era of human history.

  63. DL says:

    ben22 @ 4:09

    “Are you thinking credit deflation, hard asset inflation?”

    Yes, more or less.

    I’m thinking that the relationship that existed between real estate prices and commodities during the 1970’s will not be the same over the next 10 years as it was then. There’s also the question of the relationship between median wages and the CRB index. So, while I’m bullish on commodities (over the next several years), I don’t have a lot of conviction about where exactly the consumer price index is going.

  64. DL says:

    Mike in Nola @ 4:14

    Much depends on the time frame

  65. call me ahab says:

    there can always be a shock to the USD- such as China kicking around the idea of floating their currency- other nations coming up with some other mechanism to account for trade- or both

    an orderly devaluation is not a certainty- it could be much more chaotic

  66. ben22 says:


    You are a like a 1/2 Faber I suppose. He likes hard assets but is more about inflation as the Fed continues to monetize debt the balance sheet mushrooms. They then raise rates way to slow upon recovery and bam.

  67. ben22,

    U$D/Paperback devaluation/Loss of Purchasing Power is, to me, the Greatest Risk facing Everyone, w/in the U.S./holding U$D-denominated “Assets”.

    DL, above, is laying out a cogent Thesis of future expectations..

    IOW, what peep Need, and what they Want/Buy has, yet, to change in the order of Magnitude that we will witness going fwd:

    when more peep wake-up to the fact that they’re holding quantities of fictitious ‘Assets’ that far outstrips the physical supple of worthwhile Goods, we’ll see whole new definitions of what ‘non-linearity’ really means..
    to borrow from Gladwell, that’s a “Tipping Point” that No One wants to be on the wrong side of..

  68. ben22 says:


    Totally agree with you on this one. While I may be a short term dollar bull I know where all this eventually leads.

    Also w/this:

    IOW, what peep Need, and what they Want/Buy has, yet, to change in the order of Magnitude that we will witness

    Also so very true, though Franklin doesn’t get this just yet. When that ends, you might see what both of us fear, occur like the flip of a light switch. I have warned clients about this and the look of fear is amazing. I don’t know how far away it is, nobody does, and we should know, the entitled in this country will spend every last dime while they can. Many define things like several household televisions, the latest fashion styles and any new electronic gadget as “needs”

    On the investment side:

    If you bought some hard assets back in late Nov, or oil earlier this year then that’s fine, but at the current levels I don’t exactly see “value”, in general.

  69. dead hobo says:

    franklin411 Says:
    May 23rd, 2009 at 1:17 pm

    Well, it didn’t come true, and it isn’t coming true. Things are horrible–the worst any of us have ever seen. But the world isn’t ending. There will be a dawn. Growth will return, someday. Things are better now than they were 3 months ago. People don’t expect a new golden age overnight, but they can see that this too shall pass.

    I read your posts today, not just this one, and have, for the first time, noticed an intelligence and the potential of an interesting perspective. I, too, follow a somewhat non traditional interpretation of events. Only my experience with pleasant people who lack aspects of morality colors my perspective. You have potential. The Eisenhower-esq era belief in traditional values is your flaw. People are people, and not the embodiment of Pleasantville. Get past that and you might have something interesting and valuable to offer.

  70. DL says:

    Anyone who’s interested in the Las Vegas economy:

  71. Cursive says:

    @ Mike in Nola 2:24

    Sorry, the rain abated and I got to work. I’ve got Windows XP and IE8. I can’t see the search box either, although I think you attributed that to the Compatibility View setting.

  72. Cursive says:


    Yeah, MA and I were discussing that earlier on this thread. Sad. I agree with Swampfox @ 3:19. Life will go on, but the intervening period between here and the end of this deleveraging event will be heartbreaking for many.

  73. Mike in Nola says:


    Try setting the compatibility view for this site. I doubt that XP is the problem. It’s either the browser or the site or ISP.

    There was a book that Barry had in his recommended reading that would probably interest you, although it was heavy going at times. It talked about the cycles of economic history going back to midieval times, with plenty of charts and graphs of prices and population. Talked about the factors you just mentioned. It didn’t imply that these had a regular period, but showed common trends within them. Of course I can’t find it on Barry’s list any more and can’t remember the name. Written about 1995. Implied that we were reaching another of those turning points, since the epochs generally ended with large accumulations of wealth, economic disparity, and social and economic breakdowns, e.g. the French Revolution.

  74. Mike in Nola says:

    Seached the Houston Library site and found it:

    The great wave : price revolutions and the rhythm of history / David Hackett Fischer.

  75. thetanman says:

    DL, ben

    I think you may have been the one who a few weeks ago was concerned about the DJTA . Well it has formed a perfect H-S and I can find only a few people talking about it, even in trader land. No mention on The I don’t watch CNBC, but from what I understand they are a little giddy. If everyone were talking about it, a H-S almost never works. On that last stab down it almost gave way. Also if you look almost a year ago to the week, OIH continued up on sheer rotation even after stocks began to fall. So everything seems to be set up, and if it is, OIH should begin to fall. Prediction? The H-S will be confirmed. If we do start down in a big way, it will be very ominous and eerie. Friday being down would seem to be bad too.

  76. ben22 says:


    DL may have mentioned it but yes, I brought this up about 3 weeks ago. Thanks for your insight.

  77. thetanman says:


    I knew one or both of you were very concerned about the DJTA. Thanks and GL.

  78. moneyneversleepsblog says:

    Does anyone know if Yamada is still sticking by her call for the final market lows to be something crazy like S&P 400-500??? I vaguely remember it from Fast Money, she was working the theory that the S&P had a major double top and would continue to break lower and lower… and lower… the only small little issue with the S&P double top theory is that most stocks did NOT have the same double top because the rally to the top for the 2nd time was led by a few…

    goes back to the theory that it is not a stock market… but a market of stocks…

  79. drollere says:

    my exasperation with “technical analysis” (aka graphical description) is nicely captured by this post. the fatal question is always: so what?

    bush and nixon were both unpopular presidents — so what? psychology was the same — so what? the market went up 30% and then down 40% — so what? parallels aren’t causal arguments, and similarities aren’t relationships. (they can get auctioned on ebay, if a piece of toast looks like the virgin mary.) imagine the state of medicine, if we simply diagnosed one patient because he or she “looked like” another patient.

    the illusion is that graphical description gives us causal insight (“technical analysis”), but it doesn’t. it simply formalizes visual (not even quantitative) similarities. nothing at all about volume, about leverage, about exchange rates, about fundamentals … just a line moving up and down.

    we could learn something from the line, if we systematically compared its behavior to the elements of a causal model, used the comparison to identify driving variables, and then used the driving variables to predict the future movement of the line. i don’t believe that has ever been tried with graphical description. instead, one graphical description is compared to another graphical description, and the hunt for historical parallels is on.

  80. seneca says:

    In reply to usphoenix, Barron’s free “Market Lab” section provides a weekly table containing P/E’s and dividend yields for the major indexes:

    As of Friday, May 22, 2009, the S&P500′s dividend yield was 2.56 percent. Actual dividends per share in the S&P500 have fallen from $29 a year ago to $23 today.

    The NY Times ran an extraordinary article last January that didn’t get the attention it deserved. The upshot was that “As a group, shareholders were paid about $200 billion more than their companies earned” between the fourth quarter of 2004 through the third quarter of 2008. Easy money and lax lending standards let companies use borrowed money to pay dividends and buy back shares. That era upended the hallowed Wall Street maxim “Dividends don’t lie.”

    Here’s a link to the NY Times article by Floyd Norris (“Easy Loans Financed Dividends”):

  81. [...] the Big Picture - if the next few years Dow is going to behave like 1938-42, it would be very difficult for a lot [...]