Thursday, August 16, 2007

Possible Explosion on Wall Street???


The Dow Jones hit a high of 381 September 3, 1929. By Wednesday October 23 it had dropped to 305. On Black Thursday October 24th 1929, the stock market was in a free fall. The market had fallen to 274. Then at 1:30 Richard Whitney Vice President of the Stock exchange walked to trading post number two, US Steel and announced a bid of 205 for 10,000 Steel. This was 40 points above the market price. He then went on to several other posts and placed bids for stock above the market price. The stock market came back to close at 299 (The money for his bids was fronted by JP Morgan et al). The following Monday the market dropped to 260 and then on Black Tuesday the market dropped to 230.

And Now:

The Dow Jones hit a high of 14,000 July 19, 2007. By Wednesday August 16, 2007 it had dropped to 12,861. On Thursday the market started dropping down about 350 points and came back to close at 12,845.

It looks like Bernanke is the replacement for the historical JP Morgan banker’s consortium of 1929. It kind of makes you wonder if the rest of what is about to happen, hasn’t already been written. It's probably just my imagination running amok again.

BTW can somebody go over to Bear Sterns and turn out the lights? I guess we won’t read the obit until they pull the plug. Plus, I hear that Country Wide is in an adjoining bed.


Peter Kay said...

I remember reading "The Great Depression of 1991" and it essentially said many things your blog does about how many ripe conditions are repeating the 1929 mistakes. I believed "the experts" then and really made a huge mistake in my life. I won't repeat that.

Put your money where your mouth is: make a prediction on where the market will be in 30 days.

(BTW, your conclusion on this post is misguided. The old market lost 31% (from 381 to 260) while this one lost 8.1% (14000 to 12861). Hardly a similar situation. I'm cluesless about the markets but even I could pick that out)

Jim in San Marcos said...

Hi Pete

I remember reading Batra's book. He had a lot of good points. The only problem with predicting the future, is that none of us is really any good at it.

There is quite a difference between the two comparisons of 1929 and today, when you measure the percentages. I was just pointing out the historical parallels. After Japans market dumped last night, Bernanke did the predicted.

As for where the market will be in 30 days, is a hard call, but next Tuesday at the close how about Dow 9,000.

Anonymous said...

Jim, maybe as a warning to some readers I think your blog should have the disclaimer "For Entertainment Purposes Only" at the top to CYOA.

Pete... In my humble opinion I say to you that you should believe only half of what you read and nothing people say. Make your decisions based on your own sound research and analysis, not what "experts" are saying. Truths always lie between the lines, not in the text itself.

Ouch..! 9000 by next Tuesday. I will agree with your assessment since it doesn't cost me anything to make it. Since mid 2004 I have seen many predict the housing market that continues to unfold that (smart?) folks in the financial industry said would/could never happen. Will the credit crisis bring this market down??? It has to, since the country is driven primarily by credit (now the lack of it). When is the last time you actually paid cash for something over $500?

Friday August 17, 5:20 pm. ET WASHINGTON (AP) – “The Federal Reserve approved a half-percentage point cut in its discount rate on loans to banks Friday, a dramatic move designed to stabilize financial markets roiled by a widening credit crisis. The action sent stocks soaring, with the Dow Jones industrial average up more than 300 points right after the opening bell. The blue chip index finished the day up 233.30 points at 13,079.08.”

The Fed has been pumping $billions$ into the banking system this past week and cut the discount rate on Friday to "help" the "credit crisis" situation. Note the words “dramatic move” and “the action sent stock soaring” in the article. History has shown that anything the Fed does to stabilize the markets is always too-little-too-late.

It's not the gains or losses over the last 3 weeks on Wall Street but the historical trading volume numbers that is interesting to me. I doubt the massive increase in volume is from (investors?) staging for another future "run-up" in stock prices. I also don’t believe that Smart money took the Dow to over 14,000 last month.

Someone once told me that “The only thing we have ever learned from history is… that we have never learned anything from history.”

Jim in San Marcos said...

Hi Anon

I agree with you. You raise several good points.

I picked next Tuesday only because of what the Fed did today. 90 percent of the people have no idea of what this actually accomplished. They will figure that things must be really serious for the Fed to intervene and it's time to get out of the market. The only trouble is, everyone else is thinking the same thing.

I suspect people will be sneaking towards the exits on Tuesday. I could be wrong on the day, but one guy got his name in stock market history in 1929 with the "Babson Break"

Thank you for your comments

Anonymous said...

You're too late.

The peak was almost a month ago now - we're already crashing, you just don't see/feel it yet.

If you match up the 2007 and 1929 Dow charts, it would be late September 1929 right now and you'd all be going 'crash, what crash ?'

It's even too late to try to explain to you why a roughly 80 year interval between major crashes is almost inevitable as well.

I feel like the Mad Hatter trying to explain it all to the White Rabbit ... 'Why of course you're late ...'

DOW Under 9000 (and probably under 8000) by the end of September.

And yes I have money on that.


Anonymous said...

On the day the Dow hit 14K, I moved 75% of my 401K into a US Treasury bond fund. The rest I put into MSCI foreign fund to insulate it from America's subprime woes (oops). The treasury fund has gone up a bit and the MSCI has dropped several percentage points (Japans 5% drop did a doosey on it). In comparison, several of my coworkers have lost a bundle.

I'm considering putting it all in US Treasury bonds and eating the loss on MSCI. Problem: This is the last trade I can make before Jan 1.

What are the chances the market will roar back to 14+ and keep climbing (while I miss out)?

Sackerson said...

Hi Jim

I'm not an economist, but from what I read I understand that there was monetary inflation 1923-1928 leading to the bust of 1929, but it was the attempt of the government to manage the crisis afterwards that made things worse.

Presumably people like Ben Bernanke will have read about this period carefully and decided to play it a different way, e.g. continue drinking to ward off the hangover. So although we may compare then with now, there are also differences that mean the outcome may be different, or happen by a different route.

Jim in San Marcos said...

Anon 7:16

If you go into Treasurys, make sure that they are short term Treasury's. Any long term bond could be a lead weight if interest rates go up. You get your principle back at maturity, and that could suck on a 30 Treasury paying 4% if the market jumped to 8%.

Your question about what happens if the market comes roaring back answers itself, diversify. High risk deserves high returns. 10% of my investments are very high risk, and they pay off now and then. Lately I've had a little bad luck with Florshiem, KMart and Bethlehem Steel.

Jim in San Marcos said...

Hi Sackerson

I liked your weather map on bearwatch, cute.

As for the inflation bit, I think that $3 gas and $10 T-Bone steaks point out the obvious that the government is trying to hide. The Cost of Living COLAS would kill them.

I was googling something yesterday and came across some Ben Bernanke essays on The Great Depression. Haven't had a chance to check them out yet, so it looks like he knows what's going on.

I don't think that Bernanke or any one else is going to solve this mess, we'll just have to ride it out. The economy is like a dysfunctional family, the daughters pregnant, the wife's an alcoholic, the sons a drug addict and the husband just lost his job. Things will get better, it's just not going to be tomorrow.

Sackerson said...

Hi Jim

I suppose that if money has been created ex nihilo by banks, it can be annihilated by bankruptcies and defaults. If the show ends in a credit crunch, the effects could be complex. Fewer dollars mean lower prices, but also lower wages and greater unemployment - can anyone sensibly predict the consequences in detail? Maybe this horrible unpredictability is why the Fed (and our Bank of England) keep pumping.

Anonymous said...

Having been spanked by the market back in 2001 I became very untrusting of the stock market. More like I knew enough to know that I did NOT know enough to mess with it. Plus I followed my brokers advise.. not my gut feelings.
I have a 100 pound crate of silver and I hope I will not need it to survive what is playing out under our noses.