AA, I did a crash value rate of return from 1929 and came up with a modern day equivalent of around Dow 194,000 in present day terms at the 1929 peak. That's one heck of a bubble, and I'm not sure we could say the Nasdaq bubble is worse than the bubble in 1929.
The one thing that may have made a difference is tax law today versus 1929. The lower effective tax rates back then may have made for lower relative P/E's on similar earnings. I don't know for sure, though.
If you look back on the Nasdaq, the valuation at the 1987 low was higher than the 1990 low. Same with the 1982 period. That's why I chose the low in 1990 for the Nasdaq's start. It seemed to be the best place for the beginning of the tech comparative low.
As for deep and long recoveries, I do believe that the Dow low at 41 in 1932 would be equivalent to Dow 16,000 today at that historic rate of return. As for the Nikkei's drawn out bubble, it's their own fault for lousy deflationary policy. Bubbles tend to re-trace in bell curves. If you string out the process, you get the same result, only years later.
That's why this bubble is deflating quicker than 1929's and the Nikkei's. There has been some intervention, but not too much to stop the market from slowly correcting the excess of our bubble.
Anyway, I use the term Crash Value to try to find a fair value for crashes or market bottoms. Sometimes the bottom doesn't qualify as a crash, but it could qualify as a good bottom. August 1982 is an example of that on the SPX, Dow, and NYSE. I believe October 1990 is the same for the COMP. |
