Strictly: Drilling II Message Board

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Strategies & Market Trends : Strictly: Drilling II

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To: nspolar who wrote (20912)	10/29/2002 8:14:02 PM
From: rolatzi	Read Replies (1) of 36161

Well, Here's what happened to interest rates in the 1930's. Firstly, the period was characterized by a deflationary environment consisting of declining short and long term rates. Dick Stoken characterized a deflationary period as being defined by 5 year lows in long and short term rates. That deflationary environment lasted from 1920 to 1946. It is characterized by 5 year lows in Long term AAA corporate bonds beginning at 6.38% in 1920 ending at 2.46% in 1946. The short term interest measured by the 90 day Prime Acceptance Rate went from 6.25% to 0.44% in the same time period. The bear markets in that period were from 1920 to 1921 (loss of 45%}, 1929 to 1932 (loss of 89%) and 1937 to 1941 (loss of 52%). The beginning of deflationary periods are very good for stocks and bonds as money flows out of real assets. Let consider 1929 to 1932 for now. In the spring of 1929 short term rates topped out at 5.50% while long term rates were at 4.80% in September of 1929. At the low in the summer of 1932 around 41 in the Dow (a loss of 89% from the high in 1929), short and long term rates were at 0.75% and 5.26%. Rates did not decline continuously in that period, however. Short term rates bottomed at 0.88% in Sep 1931 but went back up to 3.25% by November of that year and then rapidly declined. I don't know why long term rates went up like that in 1931 but undoubtably it exacerbated the stock market decline from 1931 to 1932. In 1929 there was a mild deflation (averaging -2.5%) but it accelerated and by the middle of 1930 through 1932 deflation averaged around -15%. It wasn't until the end of 1933 that inflation set in again. From July 1932 to April 1937 there was a cyclical bull market with a more than 300% gain in the Dow followed by another cyclical bear market lasting until April 1942 and declining by 50%. The cyclical bull markets in this period can be characterized by declining interest rates and follow 5 year lows in the stock market. More later, Ro

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