My concern with this market and economy is the fact that analysts and commentators have great justifications as to why stock valuations are the best it's ever been, yet the methods by which the valuations were generated had been questionable methods from the start.
How could anyone believe GAAP accounting rules (or suggestions) when this method was clearly managed and manipulate all along? How am I supposed to believe, now that we've been routed in the stock market, that this method of accounting is useful? Didn't we have the same problem crop up after Enron and Worldcom? Didn't we have the same problem with the Dot-com bust? Wasn't Sarbane-Oxley legislation supposed to stop the use of off-shore investment vehicles?
Despite the credentials of Mr. Bernanke and Mr. Paulson, how could we believe the Federal Reserve and Treasury will fix the problems in the banking system and economy? Mr. Bernanke has spent much of his time as an academician pouring over the financial crisis of 1929 yet he does just the things that replicate many of the worst reactions to financial crisis throughout the history of the banking world . Mr. Paulson had spent his time as CEO of Goldman Sachs creating the very financial instruments that threaten the world economy. Are we now expected to believe the Mr. Paulson will impartially manage his role as Treasury Secretary?
Didn't the ratings agencies like Moody's, Fitch, and Standard & Poor's have a clear and present conflict of interest on the debt they were rating as top quality? It seems to me that collecting fees from those that you're supposed to be rating is a lot like a conflict of interest.
Since when do banks name their own lending products "NINJA" or "no doc" loans? Why would banking institutions offer products that normally require due diligence but give up that right and responsibility? After not doing their due diligence and being on the brink of failure the banks get a bailout with taxpayer money and the public is told "consider the alternatives."
From my studies of economics and banking history since the first banks of Genoa in the 1400's, each day that money is shoveled into the market and banking system the pain of prior periods is prolonged. This is what has made this market seem to drag out the pain of the last year of stock declines. Using the market decline and banking panic of 1929 as a template, we're not projected to hit a bottom in the stock market until 2014 if no new bailouts come into play and 2018 or longer if the Fed and Treasury keep adding money to the system.
Stock Market Observations About the Period From 1929 to 1932
Nothing, so far, that has happened in this stock market is inconsistent with what happened during the decline of the stock market in 1929. The only exception is the fact that the banking system is being threatened at the onset of the stock market decline, whereas banks weren't truly put to the test until 1931. What follows are my observations of the bear market rallies from 1929-1932.
Within every market decline or rise there are at least three major periods (or legs) to the move. The three periods in a declining market are offset with short moves higher. These moves are typically called a bear market rally. Bear market rallies often look like a new bull market but are really expressions of exhaustion. This means that the market should continue its decline however it just needs a break. The stock market decline of 1929 to 1932 was exceptional in that it has six major bear market rallies. Giving investors plenty of chances to take advantage of the markets rise which inevitably wiped out whatever remaining assets that small investors had.
Let’s examine the six bear market rallies of 1929-1932 to better understand what we might experience in the current market. After the Dow Industrials declined 47% in two months from the high of 381.17 to the low of 198.69 the first rally began on November 13, 1929 and ended on April 17, 1930 at a level of 294.07. The amount of the increase in that period was exactly 48% and lasted five months.
The second bear market rally started on June 24, 1930 at the level of 211.84 and ended on September 10, 1930 at a level of 245.09. The amount of the increase in that period was 15.7% and lasted less than 3 months.
The third bear market rally took place from December 16, 1930 and ended on February 24, 1931. The increase of that rally was 18.96% and lasted a little over 2 months.
The fourth bear market rally started on June 2, 1931 at the level of 121.70 and ended on July 3, 1931 at the level of 155.26. The amount of the increase was 27.58% and lasted 1 month.
The fifth bear market rally began on October 5, 1931 and ended on November 9, 1931. The amount of change during that period was 35.05% and lasted slightly over one month.
Finally, the sixth bear market rally lasted from January 5, 1932 to March 10, 1932. The amount of gain within this period was 19.85% with two periods of 20-plus percentage gains within that period which lasted only 2 months.
How could anyone believe GAAP accounting rules (or suggestions) when this method was clearly managed and manipulate all along? How am I supposed to believe, now that we've been routed in the stock market, that this method of accounting is useful? Didn't we have the same problem crop up after Enron and Worldcom? Didn't we have the same problem with the Dot-com bust? Wasn't Sarbane-Oxley legislation supposed to stop the use of off-shore investment vehicles?
Despite the credentials of Mr. Bernanke and Mr. Paulson, how could we believe the Federal Reserve and Treasury will fix the problems in the banking system and economy? Mr. Bernanke has spent much of his time as an academician pouring over the financial crisis of 1929 yet he does just the things that replicate many of the worst reactions to financial crisis throughout the history of the banking world . Mr. Paulson had spent his time as CEO of Goldman Sachs creating the very financial instruments that threaten the world economy. Are we now expected to believe the Mr. Paulson will impartially manage his role as Treasury Secretary?
Didn't the ratings agencies like Moody's, Fitch, and Standard & Poor's have a clear and present conflict of interest on the debt they were rating as top quality? It seems to me that collecting fees from those that you're supposed to be rating is a lot like a conflict of interest.
Since when do banks name their own lending products "NINJA" or "no doc" loans? Why would banking institutions offer products that normally require due diligence but give up that right and responsibility? After not doing their due diligence and being on the brink of failure the banks get a bailout with taxpayer money and the public is told "consider the alternatives."
From my studies of economics and banking history since the first banks of Genoa in the 1400's, each day that money is shoveled into the market and banking system the pain of prior periods is prolonged. This is what has made this market seem to drag out the pain of the last year of stock declines. Using the market decline and banking panic of 1929 as a template, we're not projected to hit a bottom in the stock market until 2014 if no new bailouts come into play and 2018 or longer if the Fed and Treasury keep adding money to the system.
Stock Market Observations About the Period From 1929 to 1932
Nothing, so far, that has happened in this stock market is inconsistent with what happened during the decline of the stock market in 1929. The only exception is the fact that the banking system is being threatened at the onset of the stock market decline, whereas banks weren't truly put to the test until 1931. What follows are my observations of the bear market rallies from 1929-1932.
Within every market decline or rise there are at least three major periods (or legs) to the move. The three periods in a declining market are offset with short moves higher. These moves are typically called a bear market rally. Bear market rallies often look like a new bull market but are really expressions of exhaustion. This means that the market should continue its decline however it just needs a break. The stock market decline of 1929 to 1932 was exceptional in that it has six major bear market rallies. Giving investors plenty of chances to take advantage of the markets rise which inevitably wiped out whatever remaining assets that small investors had.
Let’s examine the six bear market rallies of 1929-1932 to better understand what we might experience in the current market. After the Dow Industrials declined 47% in two months from the high of 381.17 to the low of 198.69 the first rally began on November 13, 1929 and ended on April 17, 1930 at a level of 294.07. The amount of the increase in that period was exactly 48% and lasted five months.
The second bear market rally started on June 24, 1930 at the level of 211.84 and ended on September 10, 1930 at a level of 245.09. The amount of the increase in that period was 15.7% and lasted less than 3 months.
The third bear market rally took place from December 16, 1930 and ended on February 24, 1931. The increase of that rally was 18.96% and lasted a little over 2 months.
The fourth bear market rally started on June 2, 1931 at the level of 121.70 and ended on July 3, 1931 at the level of 155.26. The amount of the increase was 27.58% and lasted 1 month.
The fifth bear market rally began on October 5, 1931 and ended on November 9, 1931. The amount of change during that period was 35.05% and lasted slightly over one month.
Finally, the sixth bear market rally lasted from January 5, 1932 to March 10, 1932. The amount of gain within this period was 19.85% with two periods of 20-plus percentage gains within that period which lasted only 2 months.
The decline of the stock market from 1929 to 1932 was very short. Yet it was brutal on the downside. In just under three years the market dropped 89%. We may not be on track for a 1929-style decline. The alternatives could be the one like that of the period from 1966 to 1974 which didn't get to break-even until 1982. The decline from '66-'74 lost 60% on an inflation adjusted basis. Another idea is that the markets go dramatically higher without ever looking back. This scenario seems highly unlikely but it could happen just the same.
The period from 1929-1932 declined very quickly and for one reason, the government didn’t have its hand in the bailout of the financial institutions along the way. The decline in the stock market wasn't the cause of the depression, I believe the cause was the banking collapse of 1931. The banking crisis then, as with today, was due to the prior periods of malinvestment and projections based on apparent prosperity. Touc.
Background on some of causes of the worldwide Banking Panic of 1931 and collapse are below:
Background on some of causes of the worldwide Banking Panic of 1931 and collapse are below:
