Dow Jones Now Aligned To 1929 - People just don't listen
Wall ST. IN PANIC AS STOCKS CRASH
History lessons from
“The Great Crash”?
Galbraith described these 1920s investment companies as “more wonderous than the South Seas Company” in that “they were undertakings the nature of which was never to be revealed”. Perhaps present-day “special-purpose acquisition companies” (SPACs) – “blank-cheque” companies – match them in lack of transparency.
Beginning in 1928, additional market support came from optimistic commentary: the “process of reassurance … (which) eventually achieved the status of a profession” … “For effective incantation, knowledge is neither necessary nor assumed.” Today, as then, optimistic seers get more airplay than spoilsports predicting an end to the good times.
“Organised support” was mobilised when the boom faltered in 1929. Financiers made coordinated efforts to shore up the market, although there was more show than substance.
In today’s world, “organised support” has been replaced by the “Greenspan put” – the US Federal Reserve’s readiness to prop-up sharply falling financial markets, pioneered by the chairman Alan Greenspan in 1987, repeated by his successors Ben Bernanke in 2008 and by Jerome Powell in 2018 and 2020. This has proved more substantive than in 1929, but at some cost. Each time the market has been saved, this was taken as endorsement of the speculation.
As prices fell in 1929, balance sheets were cross-infected, with prime stocks sold at fire-sale prices because non-prime stocks in the same portfolio were illiquid. This phenomenon re-emerged in 2008 and in March 2020.
The Shiller cyclically-adjusted Price/Earnings ratio for US stocks is currently twice its historical average and well above its peak before the 1929 crash. It is just short of the peak which foreshadowed the 1999 tech-wreck. Does history rhyme?
Instead of Billion this time its Trillions.
History lessons from
“The Great Crash”?
Galbraith described these 1920s investment companies as “more wonderous than the South Seas Company” in that “they were undertakings the nature of which was never to be revealed”. Perhaps present-day “special-purpose acquisition companies” (SPACs) – “blank-cheque” companies – match them in lack of transparency.
Beginning in 1928, additional market support came from optimistic commentary: the “process of reassurance … (which) eventually achieved the status of a profession” … “For effective incantation, knowledge is neither necessary nor assumed.” Today, as then, optimistic seers get more airplay than spoilsports predicting an end to the good times.
“Organised support” was mobilised when the boom faltered in 1929. Financiers made coordinated efforts to shore up the market, although there was more show than substance.
In today’s world, “organised support” has been replaced by the “Greenspan put” – the US Federal Reserve’s readiness to prop-up sharply falling financial markets, pioneered by the chairman Alan Greenspan in 1987, repeated by his successors Ben Bernanke in 2008 and by Jerome Powell in 2018 and 2020. This has proved more substantive than in 1929, but at some cost. Each time the market has been saved, this was taken as endorsement of the speculation.
As prices fell in 1929, balance sheets were cross-infected, with prime stocks sold at fire-sale prices because non-prime stocks in the same portfolio were illiquid. This phenomenon re-emerged in 2008 and in March 2020.
The Shiller cyclically-adjusted Price/Earnings ratio for US stocks is currently twice its historical average and well above its peak before the 1929 crash. It is just short of the peak which foreshadowed the 1999 tech-wreck. Does history rhyme?
Instead of Billion this time its Trillions.