just in in-tray, good news
Thank you for the numerous emails I received in the past days, I will reply to all of you by tomorrow.
The last time I have seen the market caught in such a downward vortex is during the similar 1987 de-levering process when the S&P500 dropped 34% in 10 days, but that was during the 1982 to 2000 equity bull market, and, inversely, the secular 18-year long commodity bear market.
Thus, a much more accurate comparison of today's market action is 1973-1974. Back then, the bear market for stocks began in 1966 and ended in 1982, a typical 16-year long period, and a typical period for the commodity bull market that span through that same period. Look at the CRB commodity index chart attached and observe that the recent "collapse" of commodity prices happened in the same way in 1974, only to continue its rise until 1981.
From early 1973 to the end of 1974, the Dow Jones sank from 1050 to 577, a massive 45% drop in 22 months. Currently, the Dow Jones dropped from 13900 to 8450, or a whooping 40% in just 12 months, and a cool -26% over the past 26 days.
Water-fall type declines in the past have a characteristic of lasting from 26 to 28 days, and we have just moved into that window. If this is not close to the bottom for 2008, I would not know what is. Amazingly, in each of those prior financial disasters when greed was violently punished, America’s system survived, the world economy recovered, and we thrived in the decades ahead.
Investors who sold in the height of fear were decimated. Those who bought made fortunes. Buffett declared once that back in Q4 1974, when the market crashed -34% from 870 to 577 in six months, he felt like an over-sexed boy in a brothel. You get the point, he was buying all he could afford.
When looking at the chart for Gold, one sees we are in a secular bull market. One also realizes that even in the 1970s, Gold had some deep corrections, like the 1974 to 1976 50% drop. But as sure as monetary inflation is, all precious metals rose to undreamed of levels by the early 1980's.
The Dow-to-Gold ratio chart since 1900 is further proof that the ratio ought to come down to about 1-3 within the next 5 to 7 years.
I suggest you read the Wikipedia article on Arthur Burns, the Federal Reserve Governor of the time. The similarities in geopolitical and economic events is striking.
en.wikipedia.org
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