3 Prior Market Crashes
Today's chart porn comes to us via Bob Bronson.
Here's a comparison of 3 prior market crashes: 1930, 1962, 1987 and today. (Note that there is no guarantee that this will be a crash, or if it is it will be the same as those others):
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1930, 1962, 1987, 2008
Source: Bronson Capital Markets
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We are getting to a point where markets are oversold, and due to bounce. But understand what odds we are facing here: A deep recession likely awaits us, and with it, earnings compression, and lower -- often considerably lower -- stock prices.
We will hear a lot of noise about Fed action, stimulus plans, etc. -- every reason why you should jump back in here -- but all that intervention will accomplish is delay the inevitable washout.
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UPDATE: January 23, 2008 4:15pm
Wow, that was a helluva bounce.
The rumors of NYS helping to arrange a capital bail out of the monolines didn't hurt.
And, it can keep going -- perhaps over the next few weeks -- to SPX 1,400 or so . . .
Wednesday, January 23, 2008 | 12:45 PM | Permalink
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Comments
More chart porn (CA RE):
http://media.sacbee.com/smedia/2008/01/22/21/188-3W23FORECLOSEZ.xlgraphic.prod_affiliate.4.gif
Posted by: damondidit | Jan 23, 2008 12:57:57 PM
I'd like to see these in log scale.
Posted by: anon | Jan 23, 2008 12:59:47 PM
Yeah, I'd also like to see them on the same time scale.
Posted by: RichardN | Jan 23, 2008 1:01:45 PM
That is a very pessimistic graph to produce this early in the process. If this is the bottom, I don't think people will be calling this a crash. Also, that is three prior crashes compared to what is happening now (which may or may not be called a crash later).
Posted by: jkw | Jan 23, 2008 1:03:46 PM
WHOA!!! Good Chart Porn...
Posted by: SINGER | Jan 23, 2008 1:05:24 PM
>>>I'd like to see these in log scale.<<<
>>>Yeah, I'd also like to see them on the same time scale.<<<
Guess I'm not the only one. I'm having a hard time comparing this market with the prior 3 since nothing is to scale.
Spun like a politician to make for a better story and visuals, rather than truth/facts be told.
Posted by: Michael C. | Jan 23, 2008 1:14:18 PM
BR - "but all that intervention will accomplish is delay the inevitable washout"
Ummm, I think it'll accomplish much more than that. The crash (or lack thereof) has significant implications for the future structure of the economy. For example, the deflationary aftermath of the 1929 crash created an aversion to debt that lasted for the lifetimes of those who lived through it. Had "appropriate and timely" action been taken at the time to avert those consequences, postwar economic history (possibly history itself) would likely have been quite different.
Posted by: Estragon | Jan 23, 2008 1:16:07 PM
I'm in long as of today. If we get a crash that could only be a gift to me long term and I'll surely put more cash in.
There's been a real disconnection from reality here. Earnings are not so bad and people are expecting them to be quite terrible.
I'm willing to take the risk. Good luck to other bears and bulls.
Posted by: John Borchers | Jan 23, 2008 1:17:48 PM
>>>The crash (or lack thereof) has significant implications for the future structure of the economy.<<<
In addition, how much of the nations wealth is in the market now as compared to prior periods?
I believe Tony Crescenzi once wrote that for every $1.00 that the market now loses, the economy loses $.04.
Posted by: Michael C. | Jan 23, 2008 1:20:09 PM
Michael C. - "Spun like a politician to make for a better story and visuals, rather than truth/facts be told."
It seems to me (at the risk of putting words in the mouth of our host) that BR's point is the emotions and psychology at play, not specific time or price dimension.
Posted by: Estragon | Jan 23, 2008 1:21:31 PM
All I know is that I cashed out my 401k in October. Burn baby burn!
Posted by: Wonderwood | Jan 23, 2008 1:22:35 PM
Earnings are "not that bad"? Financials are going to have crap earnings next Q...and that is if the bond insurers don't go under, causing the dominoes to fall.
On more than a couple boards, I see that Joe Average has been getting their 401K statement and they are shocked by how much they have lost. Regardless of the fact that they have not really "lost" anything, and that these are LT funds, the psychological impact is clear: No more Uggs for you.
Even APPL, the wonderboy of the market, missed with their sales of ipods and see the consumer putting their hands back in their pockets.
The disconnect from reality has been the market for the past two years, living off of cheap credit like a crack whore.
Posted by: Mr. Obvious | Jan 23, 2008 1:24:08 PM
The worst of many bear markets start from very oversold levels. My study indicates that oversold becomes meaningless at some point, and bottoms seldom provide clean signals.
My collection of chart here...
http://upstarttrader.blogspot.com/2008/01/look-back-at-bear.html
Posted by: MeanGene | Jan 23, 2008 1:24:25 PM
If techs are leading indicators as they used to be, AAPL and GOOG say those four charts could match in a few days. Over to you, Jean-Claude (Trichet)!
Posted by: Jim Haywood | Jan 23, 2008 1:27:02 PM
Log charts wouldn't add much, as the percentage decline is approximately the same for the three crashes from top to bottom.
What I do take issue with is the idea that we are "due for a bounce." Fat tails are fat for a reason, and once you move out past the third standard deviation (as we are now), all bets are off.
Posted by: Byno | Jan 23, 2008 1:28:07 PM
At the close on 16 Oct 1987, the Dow was off about 18% from its Aug. 1987 high, just before going over the waterfall on the next trading day.
Today the S&P is off about 18% from its Oct. 2007 high. SMILE -- maybe "it's different this time"! It has to be; we've got circuit breakers to protect us now. Oh wait, but not after 2:30 p.m. *stamps foot in frustration*
Posted by: Jim Haywood | Jan 23, 2008 1:36:21 PM
These charts are sensational crap. The relative scale might be accurate, but they ARE EXTREMELY MISLEADING to the point of deceit, to put it charitably!
Look at a long term log charts for 1987. Prior to the drop, you will see a massive stock surge that does not exist in 2007 or 2008. 2006 - 2007 is a small bubble by comparison. If you look at bottoms, you clearly see that the 1987 bottom is in line, more or less, with historical bottoms of the day. You also see a quick recovery to normal trend.
The 1962 chart looks similar.
I don't have data for 1930, and I couldn't possibly care less about financial history during the Great Depression and attempt to correlate that with today. Comparisons of today with 1930 are at best stupid, at worst manipulative and deceitful.
Your perpetual happy dance at finally being right about a stock drop is making you look less credible after each post.
~~~
BR: The Dow was off 18% prior to the crash in 1987.
As I have noted REPEATEDLY over the past 2 years, I do not think the 1987 parallel is applicable to the present.
Posted by: cinefoz | Jan 23, 2008 1:55:45 PM
Pay attention to cinefoz, he's an expert on lost credibility.
Posted by: E | Jan 23, 2008 2:00:35 PM
CNBC summarized today:
"Markets are well off their lows."
"Are we starting to form a bottom?"
"Buy financials and big caps"
Don't feed the cinefoz
Posted by: KirkH | Jan 23, 2008 2:05:20 PM
E,
I may have bought in a week to early, but I still have a pile of cash waiting to go when it look safe. Regardless of my mistake last week, I will still make a bundle of money this year. You will still be a poser with nothing to offer.
Posted by: cinefoz | Jan 23, 2008 2:05:32 PM
Cinefoz - "Comparisons of today with 1930 are at best stupid"
Perhaps you'd care to pass that assessment on to Ben Bernanke. He apparently disagrees.
Posted by: Estragon | Jan 23, 2008 2:06:57 PM
Seriously, cinefoz's reasoning for why stocks are attractive is that "they have gone down too far." Kind of like the people who in 2000 said that the Nasdaq at 4000 was a steal because it had dropped so much already.
Posted by: Adam | Jan 23, 2008 2:07:39 PM
Whatever rebuttal anyone cares to make to these comparitive charts, has to include the consideration that the fundamentals are so, so bad in general right now. It is surely too soon to be drawings parallels to those previous market collapses, but the overall climate right now is (quite) uniquely bad.
Posted by: New Yorker | Jan 23, 2008 2:08:18 PM
Barry,
I'm leaving your blog now. I may return when it looks like the dumbass population has dropped and the smarter people have returned, if they ever do. If that is too severe a condition, staying away forever is ok, too.
This used to be a decent place to read and write for. Some pretty smart people posted here. That is what attracted me. Now, all you seem to have is a majority of bathroom sink clogs leaving their uninformed opinions.
Whst the hell happened to you?
~~~
BR Since when did you get so bitter?
Posted by: cinefoz | Jan 23, 2008 2:11:44 PM
sure picked the wrong week to stop sniffing glue
Posted by: jake | Jan 23, 2008 2:12:02 PM
