Which of the prior three major crashes most closely resemble the 2020 crash?
Certainly, not the 2000 crash, the initial drop is of equal magnitude, however the 2000 crash took over 365 days to reach that low from the highs, the 2020 crash has plumbed lower than 30% in just over 30 days.
Similar story for the 2008 initial crash, the final leg down in 2008 after the collapse of Lehman Brothers would be the closest match, but this is still not equal to the magnitude drop we are experiencing in 2020, when you consider that the post Lehman drop was 48% over 150 days, this equates to roughly 0.3% a day, the 2020 drop by comparison is closer to 3x times the rate of drop, at over 1.0% per day in decline.
Even the initial 1929 stock market drop, that eventually lead to the great depression took 3x times as long to reach the 30% range.
Yes, the macro environments for these drops were very different, i understand this.
But it is worth considering just how unique these markets are at present time, with a combination of automated trading, real-time news feeds, easier access for retail investors and far higher leverage than ever before, this creates a highly volatile trading environment that can pivot at a moments notice.
My personal belief is that the pain is not over, there will be a bounce at some point, however i will not be participating in that rally, i will be waiting to short.
I think the ultimate bottom will be between the three crashes highlighted here, not quite the 90% devastation of the 1929 crash, but also not a 'typical' crash of 50% either.
It may sound crazy now, but, i do believe that the SP-500 "COULD," emphasis on "COULD" be lower than at the 2008 peak before the market bottom, in other words, i believe that the last decade of market gains may very well be erased.
This will obviously be dependent on the handling of Covid19 by governments around the world, this is not due to the loss of life (although that would be a global tragedy), it is instead due to the wave of defaults and bankruptcies that could flow out of this crisis as a result of the social distancing policies that governments will HAVE TO, not may have to, but have to employ in order to flatten the curve.
This will include businesses closing for for several weeks, potentially even several months, this in turn will cripple airlines, cruise ships, hotels, casinos and a host of other industries. Many of which are currently looking to the federal government for a bailout, this is also not mentioning the small businesses and how they will be impacted, or the knock on effects that this will have on employment, or lack thereof.
In short, the economic impacts and the societal impacts that will flow from the Covid19 virus are far-reaching, the macro environment is nothing like 2000 or 2008, the system is MORE unstable, not less, couple this with the potential for 1929 style unemployment and you have a recipe for disaster.
Excellent write up. I believe that the drops can be more drastic than we expect, due to the reasons you stated ie: automated algorithmic trading and investors being over leveraged. These markets will move at the sniff of a news story, or even with no news at all. So trade safe all, and keep your stops tight.
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@Vanilladelphia, precisely, i take very little pleasure when markets fall like this, it has such a real impact on so many people.
Its ON (or is that 'OFF' !?! ) ..for Young and Old, that's a FACT !
For the closest 'modern' comparison We must go back to October 1929 thru 1930 as you cannily spot.
...however nothing Historically recorded, accurately compares to what are witnessing now since the last years of the "Ancien Regime" in France c.1786 thru 1789 when the French Revolution began proper, sweeping all vestiges of Divine Right Monarchy into the dustbin of History, changing the World to this very Day.
@craigemm, It is my belief that the Covid19 scare and the market crash that results from it, won't actually be THE cause for a reset type event i.e. hyperinflation, but i believe the shift in psyche will be the cause, the government being forced to pay for worker's expenses for weeks or even potentially months, the complete disregard for any sense of monetary responsibility i.e. the Fed, ECB, BOA, BOJ etc.
I believe that this will mark the point on the chart where monetary and fiscal responsibility, or the last remaining vestiges anyway are outright abandoned, from there it will be a race to devalue and a race to the bottom.
"omplete disregard for any sense of monetary responsibility i.e. the Fed, ECB, BOA, BOJ " - 100% Correct. Wait for the Derivatives Timebomb to IMPLODE, at they point they will capiyulate and there may be a period of absolute Anarchy and Chaos. Hope you dont have anything against keeping Guns at home. You are likely to need them. Firstly as a deterrent but ultimately for protection of those you Love and the things you hold dear - SURVIVAL.
We're are going back to the Gold Standard. The 40 year experiment in Fiat has run its ludicrous, farcical Course. You heard it here first...
I have lots to discuss about where we are headed. It would be good to have a crack crew of Financial Bad Asses to consult and Rationalise with over this period of upheaval.