I may sound hysterical but I'm just a bit frustrated as we all are and letting off a bit of steam here.
Fair enough. <g>
I think the world conditions in the 1929-30 period were worse than today in many ways, but whatever. Flows of capital facilitated by data communications today are of course vastly faster and larger, even relatively, as you point out.
The 73-74 decline was a lot worse than what we've had so far. Especially if you inflation adjust, which really you have to do.
What is undeniably similar to the 1929-30 period is type of economic pressure leading to the two declines. In each case it was over capacity, excess liquidity and borrowing, and a resulting deflation. And we've faced nothing like between then and now. (Though such pressures were a common source of recessions in our history before 1929.)
I suspect we will end up with another 25% or so down from here in the S&P, but it will take a while, probably. As in many months. I would love it if it didn't, cause that would make life easy for me-- I'd jump back in with both feet, and stop worrying. But of course that is probably precisely why it won't move down that far that fast.
Why? Because a whole lot of other people would do the same as me, and many sooner. So it will stop, for a while, sooner.
Why do I say 25%? Because that would take us to the average S&P post WWII PE multiple on trailing earnings. Which is what markets tend to pay a lot more attention to in uncertain times.
One can argue of course that it should go LOWER than the average, given the dimensions of the uncertainty. But we also have some things going for us. Such as a responsive fed that knows what it is doing, certainly in response to real extremes. A technology revolution lead by the U.S. that shows no signs of slowing, and which the whole world wants.
One of the problems we have now that is perhaps a bit similar to 1929-32 is a rigid ideological free market stance, born of success. Then it was thought that any sort of governmental intervention in the economy was evil (socialist), and bound to fail miserably.
Now it is felt, including by the centrist Clinton's lead economic team, that any sort of moderation of the naked capitalism that does currently exist between countries -- in capital flows, currency attacks, and the like, is anathema. I strongly suspect that we will have to change that view before all this is over. I think, in general, that Wofenson (sp) of the World Bank has some interesting ideas. I'm talking about his moderation of capital flows out, and into, fragile economies.
Doug |
