Thursday, December 4, 2008

So You Think The Market Is Bad Now? It Went Down 89% Between 1929 And 1932

Most people are freaked out about the market right now; some people lost almost 40% in their portfolios/401Ks/529 plans and IRA. Yes that is terrible but did we hit bottom yet? Here are just some of today’s layoff announcements
Credit Suisse to cut 5,300 jobs
Nomura cutting 1,000 jobs
DuPont cutting 2,500 positions; 4,000 contractors to go
Viacom to slash 7% of its staff
AT&T to layoff 12000 positions

Except for Walmart November has been a disaster for stores, let’s take a look at some of them
Limited Brands sales at stores open at least one year fell 12%
Costco's same-store sales fell 5%
Aeropostale same-store sales declined 5%
Children's Place Retail Stores Inc sales dropped a worse-than-expected 7%.
Nordstrom same-store sales sink 15.9% in November
Chico's reports 15.4% drop in sales
Kohl's Corp. November same-store sales down 17.5%
Target Nov. same-store sales down 10.4%
Abercrombie same-store sales down 28%
Gap same-store sales down 10% in November

All we need now is for Ford, General Motors and Chrysler to go bankrupt and we will be in a perfect financial disaster storm. More people will default on their mortgages because they can’t refinance since they are under water or they simply can’t pay for even the lower mortgage payment if they did refinance since they don’t have jobs anymore. Banks will dump more houses on the market; this will bring down the prices of all the homes. More people will be under water and probably walk away from their homes since they will owe more than their house is worth. Take a look at what happened in Japan in the 1990s; prices of houses dropped over 60%

Take a look at this chart below(click on it for a larger version)

In that timeframe the high for the Dow Jones Industrial Average was 381.17 and the low was 41.81. So in less than 4 years the market dropped a whopping 89.03%!!!!
Just imagine if the market would drop 89%, this would mean that the Dow Jones Industrial Average would go as low as 1535 from today's 8000+.

Now I am not saying it will happen and I certainly hope it does not, just keep in mind that all those people who say that we have hit bottom have no clue. Take a look closely at the chart do you see the rally after the crash of 1929, it went from November 1929 until April 1930, from then on it just went down hill.


ESquared said...

Could you post the next panel of the chart to the right of the one you did, so we can see how the market recovered?

And could you post a panel for the last few years up to today?

SQL said...


Yes I will on Monday

David said...
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