Suckers’ market or a new bull run?

Who knows, but here’s a post reminding us that in 1930, people assumed it was the latter and didn’t realize until later that they were in the Great Depression. Could be the same for housing, I’m thinking.

The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929.  The spring 1930 rally took the market up nearly 50% again, to a level that was only about 20% below the previous peak.

That rally, of course, was also the biggest sucker’s rally in history.  After the market peaked in April 1930, it crashed again, eventually ending up down 89% from the 1929 high and more than 80% from the 1930 high.  The market did not reach the 1930 high again for another quarter of a century.

The rally that recently ended in April 2010 came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%).  It took the market up nearly 80% from the low!  The recent rally also lasted longer than the 1930 rally did–a year, as opposed to 6 months.

The 2009-2010 rally that ended in April, of course, may actually be the start of a great new bull market, one that will shake off the current “correction” and roar back to the market’s old highs.  On the other hand, it may yet also be another version of what happened in 1930–the start of another bear market that will take the market down for years (or even, gulp, to a new low).

Importantly, we won’t know for sure what today’s market is until we look at it with the genius of 20/20 hindsight.  As Peter Schiff pointed out yesterday, even as late as 1931, they didn’t know they were in a “Great Depression” yet.  On the contrary, the promise from the White House was that “prosperity is just around the corner.”

4 Comments

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4 responses to “Suckers’ market or a new bull run?

  1. cos cobber

    personally, i am happy about the pull back in the stock market. i have several decades ahead of me in my work career, so in the long-long-long view, it should work out. if you are over 50, these stock market convulsions are certainly far more scary.

  2. Gideon Fountain

    First Hoover raised taxes on “the rich”, then Roosevelt followed with even more. When you take money from the investor class, the people who build and produce, and start new companies, it is no wonder the stock market of the 1930’s went back down. Will we make the same mistake again? Undoubtedly.

  3. Anonymous

    Commies tend to have a poor grasp of basic economics or statistics…or history…usually just fixated on class warfare and petty jealousies

    Smart capitalists appreciate economic and market cycles; more importantly, risk adjust their portfolio for inevitable tail risks and illiquidity…cycles and volatility are opportunities for wealth creation

  4. out looking in

    Where is Santayana when you need him? Why, he is dwelling in the soul of Ben Bernanke!! It will not be repeated on his watch because he will totally debase the dollar before allowing the nominal value to plunge 89%!! Will it drop 89% denominated in gold? It already did (almost). From its peak in 2000, the SP 500 declined 86.5% in gold by the lows in 2009. The NASDAQ 100 lost 93.3%!!! People are generally afraid of what has already happened. Those fixated on inflation throughout the late 80s through the late 90s missed some of the greatest bull markets is so many assets….they were long gold…about 1999 they figured out that gold was a sell and internet stocks were the place to be.

    History lesson over