"Obama became the first Democrat since Jimmy Carter in 1976 to receive more than 50 percent of the popular vote...
"He is the 16th senator to ascend to the office, and the first since Kennedy's election in 1960..." (Robert Barnes & Michael D. Shear, Obama Makes History, bloomberg.com, November 5, 2008).
In the history of the Republican party, (Abraham Lincoln was the first Republican president), only three times have the Republicans held the presidency for two consecutive terms before losing office. The three Administrations were those of - Dwight D. Eisenhower (1953-1961), Richard Nixon/Gerald Ford (1969-1977), and George W. Bush (2001-2009).
Now that the Republicans have lost office after two terms, the post Eisenhower administration of Democrat John F. Kennedy/Lyndon B. Johnson and the post Nixon/Ford administration of Democrat James E. Carter may provide clues for what the future may hold.
"All in all, how Barack Obama responds to the formidable set of economic challenges could well determine how he is remembered in history: either as an FDR who changed the US political landscape for a generation, or as a Jimmy Carter, whose failure to tackle the economic challenges of the 1970s led to a one-term presidency and the election of Republican Ronald Reagan" (Steve Schifferes, Obama's uphill task on US economy, bbc.co.uk, November 6, 2008).
(Chart from economagic.com; with modifications)
"While the economic challenge facing Obama resembles the one faced by FDR, there is one important difference. By the time Roosevelt became president in March 1933, the stock market had long since collapsed and the economy was already well into depression. He had nowhere to go but up" (Steven Pearlstein, President's Historic Message Balances Urgency, Optimism, washingtonpost.com, February 25, 2009).
When comparing the 1930s with today it may be seen that FDR took office after the Dow Jones had fallen 89%, to its bear market low, and in the last month of the Hoover recession.
"... historically the market leads the economy out of recession by 6-9 months - and that's particularly true when pessimism is running this high" (James Stack, Hotline Update, investech.com, November 7, 2008).
Eight months before FDR took office the market began "leading" the economy out of recession.
FDR enjoyed the fruits of the 1933-37 expansion.
"Critics called it the "Roosevelt Recession." It was a depression within a depression, the first economic downturn since Roosevelt had taken office..." (David M. Kennedy, Freedom From Fear - The American People in Depression and War, 1929-1945, p.350).
"But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal" (George F. Will, Same Old New Deal? washingtonpost.com, November 30, 2008).
"Roosevelt ... stood before the world in 1938 as a badly weakened leader, unable to summon the imagination or to secure the political strength to cure his own country's apparently endless economic crisis. In the ninth year of the Great Depression and the sixth year of Roosevelt's New Deal, with more than ten million workers still unemployed, America had still not found a formula for economic recovery. From such a leader, what could the democracies hope. From such a troubled nation, what did the dictators have to fear?" (David M. Kennedy, Freedom From Fear - The American People in Depression and War, 1929-1945, p.362).
The Roosevelt crash and recession was milder than the Hoover crash and depression.
"In 1929-33 GDP declined in the US by almost 33 per cent. Following a period of recovery a secondary depression hit, and GDP declined 18.2 per cent in 1937-38. Since then the largest decline was the recession of 1974-75, where GDP declined a modest 4.9 per cent" (David Chapman, A Depression or Not A Depression, 321gold.com, November 24, 2008).
This was somewhat similar to the 1970s where the Nixon stockmarket decline and recession (1973-75) was more severe than the Carter stockmarket decline and recession (January 1980 to July 1980). But the Reagan recession, which was a marker to the end of the secular bear-market of 1966-1982, was more severe than the Nixon recession in terms of unemployment.
"A credit bubble has been growing for 25 years. We've seen, in particular over the past seven years, an unbelievable credit growth, which fuelled economic development...
"In the past few years everything went up - shares, commodities, consumer goods, real estate values, art and even bonds. Such a combination is extremely unusual. We saw the biggest investment bubble in the history of humanity. The current situation is possibly worse than the global economic crisis of 1929" (Marc Faber, Swiss Finance Guru sees bankruptcy for the U.S, macedoniaonline.eu, November 8, 2008).
The Hoover recession, of the Great Depression, was the recession that shook out the worst of the excesses of the 1920s bubble. (Unemployment peaked at 25.6% in May 1933, two months after the end of the Hoover recession). The present recession goes no where near shaking out the worst excesses of the 1990s-2000s bubbles.
This suggests that a future stockmarket crash and recession will be the one that shakes out the worst excesses of the 1932-2007 super-cycle.
If the fall from the latest Dow Jones high was to follow 1929-32 (a 89.19% decline) it would have to fall from 14,164.53 to 1,531.19. This would mean that the Dow Jones would have to fall another 5,015.86 points, or 76.61%, from the present low of 6,547.05 (March 9, 2009) of this cycle; or alternatively, the Dow Jones would have to fall another 35.41% from the 2007 nominal high.
The 'rhymes' below may provide the time-lines leading up to another Hoover type recession and Great Depression.
The Jimmy Carter rhyme, in a secular bear-market, will be looked at first followed by the JFK rhyme, in a secular bull-market. In the latter, particular interest is the Kennedy boom and crash. See below for the uncanny similarities between 1960 and 2008.
The Jimmy Carter Rhyme
""Unfortunately, the next president's No. 1 priority is going to be preventing the biggest financial crisis in possibly the last century from turning into the next Great Depression," says Austan Goolsbee, an Obama adviser. "That has to be No. 1. Nobody ever wanted that to be the priority. But that's clearly where we are" (David Leonhardt, Top Priority Is Stabilizing the Patient, nytimes.com, November 5, 2008).
(Chart from economagic.com; with modifications)
"Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence...
""Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial"" (Ambrose Evans-Pritchard, Volcker issues dire warning on slump, telegraph.co.uk, November 17, 2008).
Now that Barak Obama is the president of the United States of America the 'rhyme' of the 1970s with Today takes on more significance in viewing the timeline of the future sharemarket crash and great recession.
In the 1960s we had two Democratic presidential terms, in which the Dow Jones reached its valuation high. This was followed by two Republican presidential terms, in which the Dow Jones achieved its nominal high. Then followed the one term Democratic administration of Jimmy Carter.
In the 1990s we had two Democratic presidential terms, in which the Dow Jones reached its valuation high. This was followed by two Republican presidential terms, in which the Dow Jones achieved its now nominal high. Then followed the present (one term?) Democratic administration of Barak Obama.
Market tops and Australian elections
The Australian Labor party defeated Conservative parties and came to power just as the American post-war booms - 1921-1929 and 1949-1973 - were about to go bust. The Great Depression of the 1930s and the Great Stagflation of the 1970s were arguably the primary reason for Labor being in office for just over 2 years and just under three years respectfully.
The nominal high in the American blue-chip sharemarket index the Dow Jones Industrial Average peaked six weeks before the Labor took office in 1929 and the Dow peaked four weeks after Labor took office in 1972.
The present nominal Dow Jones peak occurred eight weeks before the Rudd Labor government took office in 2007.
[The nominal Dow Jones high occurred in the third year of George Bush's second term as president as opposed to the last year of Richard Nixon's first term as president].
Nominal highs in the Dow Jones, in the P/E ratio longwave cycle, have occurred in Republican Administrations. This suggests the 2007 nominal high in the Dow maybe the high for this cycle.
The nominal high of 1973 (1,051.70) came under threat in 1976 (1,014.79) and in 1981 (1,024.05).
"The U.S. economy slipped into recession in December 2007, the nation's business cycle arbiter declared on Monday, and the downturn could be the worst since World War Two...
"President George W. Bush is the first president since Richard Nixon to preside over two recessions" (Emily Kaiser, Recession started in December 2007: panel, reuters.com, December 1, 2008).
With the present nominal high in the Dow coming late in George Bush's second term there has not yet been a counterpart to the major rally of 1974-76, that began in the recession of 1973-75; but there could soon be:
"The S&P 500 Index may be on the cusp of a rally by Inauguration Day, based on the speed of its tumble from last year's peak and the time it took stocks to gain before recessions ended in 1975, 1982 and 1991, data compiled by Bloomberg show. This year's plunge in stocks suggests that equity investors anticipate an economic contraction as severe as the one that began under Richard Nixon that will end in July.
"The S&P 500's slump since last year's high is the steepest for a comparable period since the gauge fell 43 percent in the 13 months ended in October 1974, Bloomberg data show.
"The economy then was mired in a recession that lasted 16 months and ended in March 1975, five months after the equity market began its rebound. During the recessions of 1982 and 1991, the S&P 500 began to climb four months and five months before the economy started to recover, respectively.
"Based on the market's history of anticipating economic recoveries, the S&P 500 may embark on its next bull market in February, about a month after Obama's inauguration on Jan. 20" (Elizabeth Stanton, U.S. Stocks Post Biggest Post-Election Drop on Economic Concern, bloomberg.com, November 5, 2008).
The present bull market began on March 10, 2009, about a month and a half after the Obama inauguration.
The low in the Dow Jones in 1974, establishing the trough of that bear market, was lower than 1970 Dow Jones trough in the previous bear market. The low in the Dow Jones in 2009, establishing the trough of the following bear market (?), was lower than the 2002 Dow trough in the previous bear market.
(The 1973-75 recession occurred in two presidential terms - Nixon and Ford. The present recession has also occured in two presidential terms - Bush and Obama. Four months after Ford took office a new bull market began).
The 1976 Dow high was eventually followed by recession in 1980, and the 1981 Dow high was soon followed by recession in 1981-82.
"The current unemployment rate, 6.1 percent - up more than a percentage point since April - is still relatively mild by post-World War II standards. The highest level since the Great Depression, 10.8 percent, came in November and December of 1982 as the economy was shaking off a severe recession.
"The unemployment rate hit 9 percent during the mid-1970s recession..." (Louis Uchitelle, Spending Stalls and Businesses Slash U.S. Jobs, nytimes.com, October 26, 2008).
To be continued.
Post Iraq - Post Vietnam
"Outside this country, most people would probably agree with Madeleine Albright's judgement when she spoke to me: "I think Iraq will go down in history as the greatest disaster of American foreign policy - worse than Vietnam"...
"America is no longer the power it was. Without meaning to, President Bush demonstrated that. It can still lead, but it is no longer in a position to dictate to the wider world...
"Barack Obama clearly understands this...
"This is no guarantee that he will be a success as President. Jimmy Carter understood the US's reduced position in the post-Vietnam world, and he refused to dictate to the world. Nowadays most Americans regard him as a failure" (John Simpson, President Obama and the world, bbc.co.uk, November 5, 2008).
The JFK Rhyme
"... as he [Obama] prepares for office, gathering around himself the "best and brightest" the nation can provide, there is one man above all with whom Obama is being compared - particularly so today, on the 45th anniversary of his death in Dallas. Like Obama, John F Kennedy was a figure of youth and vitality, of intelligence, wit and charm, of astonishing oratorical ability. He too campaigned on a promise of hope, and change, of a generational shift in power. More to the point, Obama has deliberately sought to wrap himself in the Kennedy aura" (Robert Dallek, Barack Obama faces an even heavier burden of hope than John F Kennedy, telegraph.co.uk, November 22, 2008).
(Chart from economagic.com; with modifications)
"The Dow had risen steadily in the first half of 1959, but there was a sell-off in the fall, after which the market recovered to close at a new all-time high of 697. But there were indications that a new recession was developing... More than three decades had passed since the Great Crash, but its specter haunted Wall Street whenever the economy gave indications of a downturn or the market sold off...
"Stocks declined sharply in January [1960], recovered somewhat, and then plunged again, not stopping before cracking the 600 level in March. Richard Russell, a leading technician, wrote that the long-awaited collapse was imminent. But [George] Schaefer [of Indianapolis, the somewhat eccentric publisher of the Dow Theory Trader, [who] had a large following among market theoreticians in the late 1950] disagreed; he remained convinced that one last upward spurt was needed before the house came tumbling down. Hamilton Bolton, a proponent of the Elliottwave Theory, told subscribers that "we are well-entered in the fifth and final upwave - the last in the bull market, and so seemed to agree with Schaefer.
"There was a mood of Armageddon on Wall Street in 1960. Although stocks see-sawed for the first half year, the Eisenhower bull market clearly had ended.
"The recession deepened... The automobile companies closed down assembly lines and the housing industry was dormant... the third Eisenhower recession was the most crippling of all.
"By then the economy was close to bottom, and a sluggish recover would commence in October and November, though this was not realized at the time, of course. The turnabout came too late and too faint to help the fading presidential candidacy of Richard Nixon. "In October, usually a month of rising employment, the jobless rolls increased by 452,000," Nixon would write in his memoirs [cp. the 240,000 jobs lost in October 2008]. "All the speeches, television broadcasts, and precinct work in the world could not counteract that one hard fact"...
["... for "Maverick" McCain, the collateral damage from the October market meltdown torpedoed his long-shot bid for the presidency... a late October to Nov 4th rally, boosting the market by 15%, was too-little, too-late..." (Gary Dorsch, After Shocks from the October Meltdown, 321gold.com, November 7, 2008)].
"Eisenhower's successor, John Kennedy, had based a good deal of his campaign upon the need to "get the country moving again," and he spoke of his willingness to "seek new directions"..." (Robert Sobel, The Last Bull Market, pp.67-69).
"On the last day of 1960 Wall Street was in a euphoric New Year's Eve mood... the last Eisenhower administration was expiring amid general stagnation and a mild business recession, and the market, then as nearly always reflected hope or fear about the future rather than current facts, was clearly reacting to the go-ahead spirit created through both instinct and intention by a young President-Elect, John F. Kennedy. People felt that now there would be action, movement, indeed forward movement; good things, never mind what, were bound to be ahead..." (John Brooks, The Go-Go years, p.26).
"The Cult of Obama" - Sydney Morning Herald headline, November 6, 2008
"The new mood persisted and grew; very soon, in fact, it grew ominously from cheerfulness to something near mania...
"By mid-February the stock averages were up some 15 percent from their October lows, and there began to be talk of a "Kennedy boom." Not even the Cuban Bay of Pigs disaster in mid-April could stem the tide..." (John Brooks, The Go-Go years, pp.26-27).
"...there were unmistakable signs in March [1961] that the recession was ending, and although Kennedy had done nothing to make this possible, he enjoyed the political benefits there from.
"The combination of fresh attractive leadership and the kind of moderation in practice the American people appeared to prefer at the time helped boost Kennedy's popularity...
"The Dow closed at 686 on April 12 [1962], giving what Dow theorists considered a "sell signal," which would mark the beginning of a bearish phase...
"As it happened, the signal had not been false...
"The Kennedy Crash had begun..." (Robert Sobel, The Last Bull Market, pp.70-89).
A historian's observation:
"... Obama will need to do all he can to mute the comparisons to Lincoln, FDR and Kennedy. It is flattering to be placed in the same league. But this could be too much of a good thing. Besides, 2009 is not 1861, or 1933, or 1961, and he will need to persuade people that the problems of our time are sufficiently different to require fresh thinking, and remedies that even the most detailed examination of the past will not provide.
"No comparison, however, is more frightening than with the event that took place on this day in 1963. It is easy, as we remember Kennedy's assassination, to imagine that deranged individuals are even now thinking up ways to bring Obama's presidency to a premature end, as happened with JFK's. Recollections of Kennedy's demise, and realistic concerns about racist fanatics yearning to gain a place in history by killing America's first black president, surely keep the Secret Service on alert 24/7.
"If Kennedy's death has any residual meaning for my country, then, it should be to understand how destructive it was to the nation's self-esteem as a rational democratic society that prided itself on non-violent constitutional change. In terms of America's future stability, preserving President Obama's safety, and giving him the chance to fulfil his four-year mandate, might be as great a requirement as bringing its economy back into balance" (Robert Dallek, Barack Obama faces an even heavier burden of hope than John F Kennedy, telegraph.co.uk, November 22, 2008).
[In a reversal of The Cuban [Soviet] missile crisis of 1962 we have:
"President Dmitri A. Medvedev of Russia greeted his future American counterpart, Senator Barack Obama, with bristling language on Wednesday, promising to place short-range missiles on Russia's western border if Washington proceeded with its planned missile defense system in Eastern Europe" (Ellen Barry and Sophia Kishkovsky, Russia Warns of Missile Deployment, nytimes.com, November 5, 2008)].
...
Stockmarket Definitions
"Correction: when your neighbor's portfolio drops in value. Technically a drop of 10 percent.
"Bear market: when your portfolio drops in value. Technically a drop of 20 percent"
(James M. Pethokoukis and Anne Kates Smith, Buy, Sell, or Sit Tight? usnews.com, September 6, 1998).
Bull market: technically "a rise in value of the market of at least 20%"
(What is a bull and a bear market, moneyinstructor.com).
'Severe' Bear Markets
The top eleven 'worst' bear market declines were at least 40 per cent declines:
Republican
|
Democrat
|
||||
Roosevelt
|
1901 - 03
|
-46.1%
|
Wilson
|
1912-14
|
-40.1%
|
Roosevelt
|
1906 - 07
|
-48.5%
|
Wilson
|
1916 - 17
|
-46.6%
|
Hoover
|
1929 - 29
|
-47.9%
|
Wilson
|
1919 - 21
|
|
Hoover
|
1930 - 32
|
- 86.0%
|
Roosevelt
|
1937 - 38
|
-49.1%
|
Nixon
|
1973 - 74
|
-45.1%
|
Roosevelt
|
1939 - 42
|
-40.4%
|
Bush
|
2007 - 09
|
-53.8%
|
|
||
For all intents and purposes we may say that Republican presidents presided over six severe 'bear' markets and the Democrats five.
Roosevelt in 1901-03, Nixon in 1973-74 and Wilson 1912-14 & 1919-21 were presidents for the majority of the 'bear'. McKinley assassinated in 1901, Nixon resigned in 1974, Wilson's first term started in 1923 and second term finished in 1921.
Democrat Clinton / Republican Bush
|
2000 - 02
|
-37.8%
|
George W. Bush was also president for the majority of time of the latest bear market.
For simplification the 1929-32 'bear' market may be considered as one. There was a 'bull' market between two 'bears', as may be ascertained from chart above. A 'bear' occurred in a single year (1929) followed by a two-year 'bear' (1930-32).
Similarly the 2000-2002 'bear' market may be considered as one. There was a 'bull' market between two 'bears'. A two-year 'bear' (2000-2002) was followed by a 'bear' in a single year (2002).
Based on the simplification then the 2000-2002 'bear' is the eleventh deepest just beating out the 1932-33 'bear' market. (The 2002-2003 correction would be a milder version of 1932-33).
Price/Earnings Ratios and Politics
To separate the Republican and Democratic bear markets the P/E ratio is employed.
(Chart from Peter Eliades, "Stockmarket Cycles", traders-talk.com, September 5, 2006; Chart and data from Robert Shiller, Irrational Exuberance, Second Ed., (Princeton: PUP, 2005).
The alternate cycle for 1949-66 is 1942-66. Using trailing "12-month earnings", as opposed to the "ten year earnings" for the chart above, the low in the S&P 500 Price/Earnings Ratio was in 1949.
The description of P/E ratios comes in the next section.
The P/E peaked in 1901 but the nominal high in the Dow Jones came just over 4½ years later in 1906 beginning the severe bear market of 1906-07.
The P/E peaked in 1966 but the nominal high came just under 7 years later in 1973 beginning the severe bear market of 1973-74.
The P/E peaked in 2000 but the nominal high came just under 7¾ later in 2007 beginning the sever bear market of 2007-??
Price/Earnings Ratios and Secular Market Cycles
Secular Market Cycles from 1901
|
|||||||
Market Cycle
|
Years
|
Market
|
P/E Ratio
|
Dow Jones
|
|||
Start
|
End
|
Start
|
End
|
Gain/Loss
|
|||
1901 - 1921
|
20
|
Bear
|
25
|
4.8
|
78.26
|
63.9
|
-18.3%
|
1921 - 1929
|
8
|
Bull
|
4.8
|
33
|
63.9
|
381.17
|
496.5%
|
1929 - 1949
|
20
|
Bear
|
33
|
9.1
|
381.17
|
161.6
|
-57.6%
|
1949 - 1966
|
17
|
Bull
|
9.1
|
24
|
161.6
|
995.15
|
515.8%
|
1966 - 1982
|
16
|
Bear
|
24
|
6.6
|
995.15
|
776.92
|
-21.9%
|
1982 - 2000
|
18
|
Bull
|
6.6
|
44
|
776.92
|
11722.98
|
1,408.9%
|
2000 - ????
|
??
|
Bear
|
44
|
??
|
11722.98
|
????
|
-????%
|
Adam Hamilton refers to these "secular market cycles" as Long Valuation Waves (a wave consists of a bull and bear market):
"The medium through which these waves travel is not stock prices, but stock valuations. Valuation describes what a stock is worth, how high or low its price happens to be relative to the underlying profits it generates for its shareholders.
"... there are times when future profit streams are cheap to buy and times when they are expensive. The financial metric used to measure the relative cheapness or dearness of profits is the venerable price-to-earnings ratio, or P/E.
"Stocks are cheap, and great long-term bargains, when P/E ratios are low. For example, in a stock trading at a P/E of 7, or 7x earnings as we say in the industry, it only costs $7 to buy $1 worth of annual profits. An expensive stock, in contrast, can trade above 28x earnings. Thus it would cost $28 to buy $1 worth of annual profits...
"They are called long because they have wavelengths running a third of a century or so..
"And they are valuation waves because they track the price that investors are generally paying for $1 of earnings at different points in these long cycles. On top of these core foundations we need to then add psychology.
"... herd psychology moves in great waves too, and is actually the underlying driver of the Long Valuation Waves...
"Prices are lowest when investors are generally scared making that the best time to buy. And prices are highest when investors wax the greediest so that is the best time to sell. In Long Valuation Wave terms these opportunities manifest themselves at the peaks and troughs of the waves...
"Valuations in 2000 at the end of the greatest bull market in US history were the highest in US history at an utterly mind-exploding 44x earnings. Investors were willingly, and foolishly, paying $44 for $1 of profits! Even in 1929 they "only" paid $33 at the top!...
"Investors buying in 1914, 1949, or 1982, near the valuation-wave troughs where everyone hated stocks, could have reaped magnificent secular gains of 629%, 516%, and 1409% on the Dow 30 over these 17-year bulls...
"But the dark side of investing, the stuff that Wall Street never talks about in public, is represented by the secular bears between every secular bull. Long-term investors buying in 1929 would have waited 19.8 years for a 58% loss! Can you imagine losing 58% of your precious long-term capital as well as wasting half of your 40-year investing life? Yet countless investors did just that, buying in 1929 as the mania hype seduced them in" (Adam Hamilton, Long Wave Valuations 2, zealllc.com, August 5, 2005).
In summary, a peak in the P/E begins a secular bear market; while a low begins a secular bull market.
Recessions
The two major components used in this article are:
(1) the cyclical (short) rises and falls in the stock market. The ten 'worse' bear markets above are examples of declines; and
(2) secular (long) bull and bear markets in the stock market; as in the chart above.
These deal with the stockmarket. A third factor, which has a relationship to the stockmarket, is required:
(3) expansions and contractions in the economy; also known as business cycles - a recession is a contraction.
A high in the stockmarket usually precedes a downturn in the economy. The most know exception is the 1929-32 Great Depression. The peak in the business cycle occurred in August 1929 and the peak in the Dow Jones occurred in September 1929.
Dow
Valuation
Peak
|
Mild
Recession
|
Dow
Nominal
Peak
|
Severe
Recession
|
Severe
Dow
Bear
|
1901 (R)
|
Sep 1902 - Aug 1904
|
1906
|
May 1907 - Jun 1908
|
1906 - 1907
|
1929 (R)
|
Aug 1929 - Mar 1933
|
1930 - 1932
|
||
1966 (D)
|
Dec 1969 - May 1970
|
1973
|
Nov 1973 - Mar 1975
|
1973 - 1974
|
2000 (D)
|
Mar 2001 - Nov 2001
|
2007?
|
Dec 2007 - ??? ???
|
2007 - ????
|
The general pattern is Dow Valuation Peak followed a mild recession followed by a stockmarket rally followed by a Dow Nominal Peak followed by a severe recession.
The Dow Valuation Peaks are shared equally among Republicans and Democrats with two each. The mild recessions followed by Dow Nominal Peaks are all Republicans.
When comparing 1999-2007 with 1900-08 and 1965-75 the duration from the Valuation Peak to the present Nominal Peak is only around 1 year longer than the '60s-'70, but it has been allowed above to be another 1½ years or so to be considered outside the norm.
The decline from 2000 to 2002 was 37.8% compared to the decline from 1901 to 1903 of 46.1%.
The rally from 2002 to the present Nominal High was 94.4% compared to the rally from 1903 to 1906 of 144.4%. For a comparable rally high, in relation to its decline, the Dow would have to reach 15,884.1 (a 118.4% gain).
Crisis then Last Hurruh
"Following the stock market crash of October 1987, forecasters reduced their GNP growth estimates for 1988 over 1987 from 2.8 to 1.9 percent, the largest drop in the 11-year history of the survey. Instead economic growth in 1988 was nearly 4 percent because the economy failed to falter following the stock market collapse.
"As the expansion continued, belief that a recession was imminent turned into the belief that prosperity was here to stay..." (Jeremy J. Siegel, Stocks for the Long Run, (New York: McGraw-Hill, 1994), p.213).
See for more on Crisis 1987
Rhymes from History
The patten from history is that a bull-market rally may be divided into two parts. A 'crisis', arguably, separates the two.
The next section looks at crises in three secular bull-markets and two in secular bear-markets, if the present market is counted as a secular market, to establish a pattern for the aftermath of the Crisis of 2007-08.
While the 1970-73 Dow 'bull' rally, in a secular bear market, is of shorter duration than the 2002-07(?) Dow bull rally it will be looked at in greater detail; especially as the 1966 and 2000 P/E ratios peaks occurred in Democratic secular bull markets.
1960s-1970s and 1990s-2000s
The two longest business cycle expansions occurred, for all intents and purposes, under Democratic Presidents.
Business Cycle
|
|||||
Expansion
|
Duration
|
P/E Peak
|
Expansion
|
Duration
|
P/E Peak
|
Feb 1961 - Dec 1969
|
106 months
|
1966
|
Mar 1991 - Mar 1991
|
120 months
|
2000
|
The Dow peaked in 1966 and the "glamour" (the go-go) stocks peaked in 1968. While the Dow and the "glamour" (the dot.com) stocks both peaked in 2000.
In 1968 and 2000 Democratic vice-presidents contenders were defeated by Republicans; Republicans come to power at tail-end of business expansions; mild Republican recessions beginning in 1969 and 2001.
Crisis 1971 - Gold-related
"The "nifty-fifty" boom of 1972, during which no price was deemed too high to pay for America's leading companies, was followed by a steep decline" (Edward Chancellor, Devil Takes The Hindmost, (New York, Plune, 2000), p.251).
Stage 1 of Boom
* Dow Jones low May 26, 1970.
* Recession ended November 1970.
By the Federal Open Market Committee meeting on February 10, 1970 "the majority had "concluded that, in light of the latest economic developments and the current business outlook, it was appropriate to move gradually towards somewhat less restraint at this time". While there was some concern during the middle of the year [1970] regarding the rapid expansion of bank credit and money supply, the intended policy of monetary ease continued and accelerated through the remainder of 1970 and the first quarter of 1971..." (M. Ray Perryman, Editor, "The Measurement of Monetary Policy", (New York, Springer, 1983), p.110).
* Dow Jones cyclical high April 28, 1971.
"Beginning with the [FOMC] meeting of April 6, 1971, the committee agreed on a temporary policy of "some minor firming in money market conditions." The directive subsequently called for further restraint at each at each FOMC meeting through August 24, 1971" (M. Ray Perryman, p.110).
* Discount rate raised to 5% on July 16, 1971.
Crisis: Nixon Shock, 1971
"In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for the nation's military expenditures and private investments. In the first six months of 1971, assets for $22 billion fled the United States.
"Because of the excessive printing of paper dollars, and the negative balance of U.S. trade, other nations were increasingly demanding fulfillment of America's "promise to pay". That is, they were demanding gold from the U.S. in exchange for paper dollars. France, in particular, made heavy and repeated demands and acquired large amounts of gold in that manner.
"In response, on August 15, 1971, Nixon unilaterally imposed 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window," making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even with his own State Department, and was soon dubbed the Nixon shock..." (Nixon Shock, wikipedia).
Stage 2 of boom
* Dow Jones cyclical low November 23, 1971.
* Discount rate lowered from 5.00% to 4.75% on November 19, 1971; and to 4.50% on December 17, 1971.
"A modest return to monetary ease as the basic intent of policymakers became apparent at the FOMC meeting of September 21, 1971. The directive called for the achievement of "moderate growth in monetary policy and credit aggregates," but "the members agreed that aggressive easing of operations should be avoided in order to minimise the risk of rekindling inflationary expectations." This directive was maintained in essentially the same form until the December meeting, at which further expansion was advocated. The December directive called for promoting "the degree of ease in bank reserves and money market conditions essential to greater growth in monetary aggregates over the months ahead. The basic policy was continued through March 1972...
"In April 1972, the committed decide to give inflationary tendencies priority over unemployment problems, and hence, moved towards a policy of moderate restraint. This shift was reinforced and intensified at the meeting on May 23, 1972. The intentions of officials moved towards greater restraint almost continually throughout the remainder of 1972 and the first quarter of 1973. Because of the rapid pace of economic activity during this period, however, the indicators did not reflect a countercyclical stance until the first quarter of 1973..." (M. Ray Perryman, pp.110-111).
* Discount rate was raised from 4.5% to 5.0% on January 15, 1973; and by August 14 it was 7.5%.
* Dow top January 11, 1973. Low in December 1974.
* Recession November 1973 - March 1975.
Crisis 1987 - Stockmarket-related
"The October 1987 crash had the largest one-day decline in stock market values in U.S. history. On October 19, the Dow Jones fell 22.6 percent... the pattern of the rise and fall of the market for 1926-1929 ... and 1984-1987 ... look remarkably similar..." (Frederic S. Mishkin & Eugene N. White, U.S. Stock Market Crashes and their Aftermath: Implications for Monetary Policy, nber.org, June 2002, p.27).
The Dow Jones rallied 150.6% from July 24, 1984 to August 25, 1987, when the Dow closed at 2,722.42. Then began a cyclical bear market with the Dow falling 36.1% by October 19, 1987, closing at 1738. 74. From here the Dow rallied 72.52% to July 16, 1990, closing at 2,999.75. The 1990 high was 10.2% higher than the 1987 high. The recession ran from July 1990 to March 1991.
"In 1987 the U.S. stock market had its worse year since 1929 and 1974. Trillions of dollars of wealth was destroyed in stock and bond values in 1987. But we never had a recession. This was because the losses were investment losses. Money in circulation actually went up..." (Kenneth J. Gerbino, There is No Credit Crisis, No Recession and That is Why Gold is Going to $1500, 321gold.com, January 18, 2008).
"The sharp decline on October 19 put the financial system under great stress because in order to keep the stock market and the related stock index futures market operating in an orderly fashion, brokers needed to extend huge amounts of credit on behalf of their customers for margin calls. The magnitude of the problem is illustrated by two brokerage firms, Kidder, Peabody and Goldman, Sachs, who by themselves had advanced $1.5 billion in response to margin calls on their customers by noon of October. MClearly, brokerage firms as well as specialists were severely in need of additional funds to finance their activities. Despite the financial strength of these firms, there was so much uncertainty that banks were reluctant to lend to the securities industry at a time when it was most needed. The Federal Reserve thus began to fear that there would be a collapse of securities firms and a breakdown in the clearing and settlement systems. To prevent this from happening, Alan Greenspan, the Chairman of the Board of Governors of the Federal Reserve, announced before the market opened on October 20 the Federal Reserve System's "readiness to serve as a source of liquidity to support the economic and financial system." The Open Market Desk then supplied $17 billion to the banking system, or more than 25 percent of bank reserves and 7 percent of the monetary base. In addition, commercial banks were told that they were expected to continue supplying other participants of the financial system with credit, including loans to broker-dealers to ensure that they could carry their inventories of securities. Spreads widened at the outset of the crisis, but then quickly decreased in response to the actions of the Fed. Although stock prices continued to oscillate violently for the remainder of 1987, financial markets gradually calmed down. The Fed carefully withdrew most of the high-powered money that it had provided, ensuring that the Federal funds rate was stable at 6.75 percent or about 1 percent below the level before the crash.
"Thus, cushioned by the Federal Reserve's action, which was reminiscent of the New York Fed's behavior in the October 1929 episode, the crash was not seen as a threat to the stability of the financial system or borrowers despite the large loss in equity values. Bank failures and loan losses were rising rapidly in the late 1980s, and yet the crash was prevented from damaging the susceptible financial system. There was almost no movement in the spread ... from mid-1987 to mid-1988. The Fed's lender of last resort operation was again successful, but this time there was no overreaction to the boom in the market and monetary policy was focused on economic activity, not the stock market..." (Frederic S. Mishkin & Eugene N. White, U.S. Stock Market Crashes and their Aftermath: Implications for Monetary Policy, nber.org, June 2002, pp.27-29).
"Bond and stock prices stabilized during the fourth quarter of 1987 and began a two-year advance that lasted from the start of 1988 to the end of 1989. The intermarket picture during those two years had reverted to a more benign alignment: a strong dollar, weak commodities, and rising bond and stock prices. At the start of 1990, however, things took a turn for the worse" (John J. Murphy, A Review of the 1980s, media.wiley.com, October 24, 2003, p.309).
"The US economy is facing a real shock from the deepening housing recession and a nominal shock from the full-blown credit crunch. There are no exact historical parallels, but the S&L Crisis that plagued US policy makers from the mid-1980s to the mid-1990s and the recession of 1991 may be related historical benchmarks worth examining...
"The US S&L Crisis was, back then, the single-most severe financial crisis faced by the US since the Great Depression. The US housing market weakened steadily in the 1980s. Interest rates were high and volatile during the late 1970s and the early 1980s, which exerted considerable pressure on the US S&Ls. In 1986, the FSLIC (Federal Savings and Loan Insurance Corporation) - the deposit insurance scheme funded by the thrift industry but guaranteed by the government - first reported being insolvent (incidentally the main reason why 1986 is remembered as the beginning of the S&L Crisis). The FSLIC eventually worked through some US$125 billion-worth of bad S&L assets. In 1989, the RTC (Resolution Trust Corporation) was established, which resolved an additional US$394 billion worth of assets. As a result of the S&L Crisis, in the decade since 1986, the number of federally insured thrift institutions in the US fell by approximately 50%. When the dust settled, the cost of the clean-up of the US S&L Crisis reached US$153 billion, in 'current' terms equivalent to some 2.6% of US GDP in 1991...
"While the US S&L Crisis is very different from the Sub-prime Crisis of 2007, in terms of the net clean-up cost, the total losses associated with the Sub-prime Crisis will need to reach US$350 billion to rival that of the S&L Crisis (and reach the same percentage of current GDP)...
"Though the US S&L Crisis did not directly cause the recession of 1991, it did restrain somewhat the availability of bank credit and impair banks' capacity to expand their balance sheets... in contrast to the recession of 2001, the 1991 recession was consumption-led. Consumer sentiment deteriorated sharply before the leading indicators began to deteriorate in earnest, as if the US consumers had anticipated a slowdown, due possibly to their realization that their debt levels were not sustainable or, more generally, that economic growth was not sustainable...
["The 2000 recession was an investment slowdown, from which the recovery was relatively rapid...]
"During this growth slowdown, inflation actually accelerated from 1988 to 1990 and reached a high of 6.4% in October 1990. A sharp deceleration in inflation ensued, with inflation (both headline CPI and PCE) declining to around 2.75% by late 1991. In the ensuing three years, headline inflation hovered within the range of 2.25-3.25%.
"Interest rates during this time were sharply reduced. In nominal terms, the FFR was cut from 9.75% in spring 1989 to 3.0% by 1993" (Stephen Jen, The US S&L Crisis, 1991 Recession and the Dollar, morganstanley.com, December 7, 2007).
Crisis 1998 - Credit-related
"... the indifferent attitude towards the dangers of international capital movements changed abruptly in late summer 1998. In August the Russian devaluation of the ruble and other serious financial troubles triggered a sharp decline in the American and other stock markets. Capital flight and the threat of currency collapse engulfed Brazil and other countries. The world was plunged into the worst economic crisis since the Great Depression" (Robert Gilpin, The Challenge of Global Capitalism, (New Jersey: PUP, 2000), p.162).
On August 31, 1998, the Dow Jones plunged 512.61 points, its fourth largest one-day net loss (in percentage terms a 6.37% loss). Then came the near-collapse of the Long Term Capital Management hedge fund in September.
The Dow Jones peaked on July 17, 1998 at 9,337.97. Then fell 18.4% to a low on September 10, 1998 at 7615.55.
"...the Federal Reserve began a series of rate cuts ... by a quarter point in September [29], October [15], and November [17,1998] to avert a global economic meltdown and in the process sparked a 191% jump in the Nasdaq over the next 18 months, and a 46% rise in the Standard & Poor's 500 Index" (Nasdaq falls to year low, news.bbc.co.uk, December 19, 2000).
Crisis 1927 - Gold-related
See on Crisis 2007
Crisis 2007-09 - Credit-related - Central Bankers Intervention Rhyme 1927 and 2007-09
2000s: "The Federal Reserve, European Central Bank and three other central banks moved in concert to alleviate a credit squeeze threatening global growth, in the biggest act of international economic cooperation since the Sept. 11 terrorist attacks...
""By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity," the Fed statement said" (Scott Lanman, Fed, ECB, Central Banks Work to Ease Credit Crunch bloomberg.com, December 12, 2007).
But it was the "European" aspect to the response, reported in an AFP article, that is of interest:
"Robert Brusca at FAO Economics said the plan appears aimed at addressing the cash squeeze facing European banks after the collapse of the US commercial paper market - short-term loans that may be backed by European banks.
""It's an attempt to get dollar liquidity to European banks that were caught short when the US commercial paper market collapsed," Brusca said.
""This should help (ease the credit crunch) if the nature of the problem in Europe is a shortage of US dollars," he added. "Banks will be able to get liquidity if this facility is big enough"" (Fed other central banks in joint effort to ease credit squeeze, @smh.com.au, December 13, 2007).
The three key points from above are (1) potential global crisis; (2) Central Bank intervention; and (3) the intervention provided American assistance to Europe.
1927: "Winston Churchill was Chancellor of the Exchequer in 1925. Eager for Britain to once again to assume world leadership, and viewing the pound sterling as a symbol of Britain's greatness, he insisted on returning the pound to its prewar relationship to the dollar and gold. In that year the pound as pegged at $4.86.
"The rate was unreasonable, and had the effect of pricing many British goods out of the world market. A flight from the pound to the dollar began at once, as Britain had its first of several financial crises in 1925. Indeed, gold from all parts of Europe came to America in great quantities in the next two years.
"Had the situation continued, most European nations would have had to leave the gold standard. Given the complexities of the reparations situation, the United States would be dragged down with them in a major financial crisis. Accordingly, Secretary of the Treasury Andrew Mellon and Benjamin Strong eagerly accepted initiations from European central bankers too a conference on the question. In 1927 Montague Norman of the Bank of England, Hjalmar Schacht of the Reichsbank, and Charles Rist of the Bank of France met with their American counterparts. The situation might well be saved, the argued, if the Federal Reserve cut its discount rate. Such an action would lower American interest rates in relation to those in Europe, and therefore attract funds to European banks. At the same time, low rates would encourage borrowing in America and stoke the speculative furnaces. Strong was unhappy about the latter probability, but in the end proved willing to further stimulate an already active American economy in order to save international liquidity. In 1927, the Federal Reserve lowered its discount rate from 4 to 3½ percent.
["... the Federal Reserve promptly began its great burst of expansion and cheap credit in the second half of 1927. This period saw the largest rate of increase of bank reserves during the 1920s, mainly due to massive purchases of U.S. government securities and of bankers' acceptances, totalling $445 million in the latter half of 1927..." (Kevin Dowd & Richard H. Timberlake, Money and the Nation State, (Edison, Transaction Publications, 1998, p.144)].
"Wall Street greeted the lowered rate... Thus, the international situation was resolved in such a way as to encourage speculation on Wall Street" (Panic on Wall Street, New York: Macmillian, 1968), pp.360-61).
"The major stock market boom on Wall Street coincided with a virtual suspension of new international lending and a retreat of capital. New money from America stopped going to Germany, Latin America, or Central Europe in June 1928. All the hot money went to Wall Street instead. And much more foreign money, especially English money, was also attracted by high returns as compared to bleak prospects elsewhere" (James Dale Davidson & William Rees-Mogg, The Great Reckoning, Revised Edition, London: Sidgwick & Jackson, 1992, p.207).
"There was a vigorous cyclical recovery after the trough in mid-1924, accompanied by a real estate boom that leveled off in 1926 and the beginning of a stockmarket boom. Towards the end of 1926, moderate restraining measures were taken before the cyclical peak which occurred in October 1926. The subsequent contraction was mild. Not long before the cyclical trough in November 1927, easing measures were taken. The buying rate on banker's acceptances was reduced ¼ of 1 percentage point from July to August 1927, and the System's bill holdings rose by $200 million; the discount rate was reduced by all Banks from 4 to 3½ between July and September 1927; and open market purchases of government securities totaling $340 million were made between late June and the middle of November 1927..." (Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960, Princeton: Princeton University Press, 1963, p. 288).
"The S&P 500 Financials Index retreated to its lowest level since October 1998, two months after Russia's debt default sent the index down 23 percent in a month" (Elizabeth Stanton, U.S. Stocks Fall; Financials Drop to Lowest in Decade, bloomberg.com, July 14, 2008).
It appears that the present crisis of 2007-2008 has a rhyme with the crisis of 1997-1998.
The trouble in Thailand in May and July 1997 compares with trouble with Bear Stearns in June and July 2007.
The largest ever IMF rescue in December 1997, engineered by the USA for Korea, compares with Central Banks intervention in December 2007, especially the American assistance to Europe.
The New York Fed bank organized bailout of LTCM hedge fund and the interest rate cuts of September, October and November 1998 compares with the 'present' Fed and Treasury "bail-out" of Wall Street and the interest rate cuts of September, October and December 2007 and January, March, April and October 2008.
"The world's top central banks joined forces on Thursday [September 18, 2008] to throw a multibillion-dollar lifeline to global markets in a dramatic effort to free up bank-to-bank lending frozen by upheavals on Wall Street.
"In an unprecedented move, the U.S. Federal Reserve made an extra $180 billion available to other major central banks to lend to their local commercial banks in a bid to get U.S. dollars circulating in overnight and short-term money markets" (Mark Felsenthal, Krista Hughes and Yoko Nishikawa, Central banks open taps to tackle market squeeze reuters.com, September 18, 2008).
"Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.
"The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each reduced their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. China's central bank separately cut its key rate 0.27 percentage point" (Scott Lanman, Fed, ECB, Central Banks Cut Rates in Coordinated Move, bloomberg.com, October 8, 2008).
In a replay of 1927 and 2007 another huge Central Bank intervention, with American assistance for Europe, especially with interest rate cuts, along with other measures, may be the signal for the final rally of the bull market that began in early October 2002.
The 'double' central banks intervention of 2007-2008 rhymes with the 'double' IMF interventions of 1997-98.
A headline on the BBC's website for August 6, 2008 reads "Ex-senator Edwards admits affair". The rhyme is captured by the BBC's headline of August 17, 1998 which reads "Clinton admits Lewinsky affair".
So we have a former Democratic presidential hopeful and a then Democratic president having affairs during a crisis before the boom before the bust.
Second and Third Term Busts
Republican Administrations
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First-Term
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Second-Term
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Third-Term
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McKinley/Roosevelt
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1897-1909
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Recession
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Crash/Recession
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Crash/Recession
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Harding/Coolidge/Hoover
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1921-1933
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Recession
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Corrections/Recession
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Crash/Recession
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Nixon/Ford
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1969-1977
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Recession
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Crash/Recession
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N/A
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Regan/Bush
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1981-1993
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Recession
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Crash
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Crash/Recession
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Bush
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2001-2009
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Recession
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Crash/Recession
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N/A
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1920s and 2000s
Recessions and 'Transport Bombs' at the beginning
The terror attack on September 16, 1920 in the heart of the financial district of New York, in a recession, when more than 30 people were killed and hundreds injured by a horse-drawn-wagon-bomb, corresponds to the terror attack of September 11, 2001 in the heart of the financial district of New York, in a recession, when more than 2,600 were killed by commercial-airline-bombs. Housing booms followed peaking in 1925 and 2005 respectively.
Double Hurricanes
1926 (September 11- September 22) and 1928 (September 6 - September 20) 'hitting' Florida and double hurricanes 'hitting' Louisiana 2005 (August 23 - August 30) and Texas 2008 (September 1 - 14).
In Florida 1928 and New Orleans 2005 compare Lake Okeechobee/dike failure and Lake Pontchartrain/levee failure; etc.
"The immense horror of Katrina is all too familiar to the people who live along Lake Okeechobee in Florida, especially those who were alive during the great storm of 1928, before hurricanes even had names. That hurricane may have caused the highest number of black people killed in a single day in the history of the United States, at least before Katrina" (Buzzle Staff and Agencies, The Deadly History of Hurricanes and Lessons That Must Be Learned, buzzle.com, September 9, 2005).
"The damage from the [1926] storm was immense; few buildings in Miami or Miami Beach were left intact. The toll for the storm was $100 million in 1926 dollars, just over $2 billion in 2005 dollars. It is estimated that if an identical storm hit in the year 2005, with modern development and prices, the storm would have caused $140-157 billion in damage. After the hurricane, the Great Depression started in South Florida, slowing recovery" (1926 Miami Hurricane, wikipedia). According to the same criteria Katrina caused $81 billion.
"[Hurricane] Ike [of 2008] was the third costliest U.S. hurricane of all time, behind both Hurricane Andrew of 1992 and Hurricane Katrina of 2005...
"On the morning of September 13, 2008, the eye of Hurricane Ike approached the Texas coast near Galveston Bay, making landfall at 2:10 a.m. CDT over the east end of Galveston Island... Widespread flooding included downtown Galveston: six ft (2 m) deep inside the Galveston County Courthouse, and the University of Texas Medical Branch at Galveston was flooded...
Housing Booms
1920s: "Furnishing another great stimulant to the economy in the 1920's, was the expanding construction industry...The demand for new homes seemed almost insatiable following the wartime years when building had been greatly curtailed..." (Gilbert C. Fite & Jim E. Reese, An Economic History of the United States, (Boston: Houghton Mifflin, 1959), p.533).
"From a peak of 900,000 new homes built in 1925, housing starts fell steadily during the last half of the 1920s, before plummeting to an all-time low of 90,000 in 1933. While construction did increase steadily over the remainder of the 1930s, the number of houses built in any one year never matched the annual increase in new families" (David L. Mason, From Building and Loans to Bail-Outs: A history, (Cambridge: CUP, 2004), p.129).
"During the decade, developers and speculators opened up housing additions, and suburbs mushroomed around many American cities. In some instances, new real estate and housing ventures were characterized by rampant speculation. Promoters in the Florida land boom in 1925 sold lots in places which did not even exist!" (Gilbert C. Fite & Jim E. Reese, p.533).
"A boom in Florida real estate drowned in a devasting hurricane in September 1926. Bank clearings in Miami sank from over a billion dollars in 1925 to $143 million in 1928, a chilling adumbration of the financial clotting that would soon choke the entire banking system..." (David Kennedy, Freedom from Fear, pp, 34-35).
Today read "sub-prime" initiated credit squeeze for shrinking of "bank clearings" as an augur for the future.
2000s: "The United States housing bubble is the economic bubble in many parts of the U.S. housing market that began roughly in 2001, especially in populous areas such as California, Florida, New York, the suburbs of Chicago in the Midwest, the BosWash megalopis, and the Southwest markets. It reached its peak in 2005 and then plateaued, and started deflating in 2006 and accelerated since..." (United States housing bubble, Wikipedia).
"We have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent" (Robert J. Shiller, A Time for Bold Thinking on Housing, nytimes.com, November 25, 2007).
Stockmarket Rallies
1923-29: "The stock market booms of 1923-29 and 1994-2000 stand out among all U.S. booms in terms of their length and the extent to which stock prices rose, and they have often been compared to one another. Like the 1990s boom, the U.S. boom of 1923-29 arose during a period of above average economic growth and low inflation. As with the recent boom, in the 1920s, many analysts attributed the booming stock market to advances in technology and business management techniques that promised rapid growth of economic activity and corporate profits..." (Michael D. Bordo and David C.Wheelock, Stock Market Booms and Monetary Policy in the Twentieth Century, Federal Reserve Bank of St. Louis Review, March/April 2007, p. 105).
2003-??
Banks
1920s: Banks and Security Affiliates (SA)
2000s: Banks and Structured Investment Vehicles (SIV)
Income disparity
1928 & 2008:
""There has been a massive shift of income from the bottom and middle to the top," says Holly Sklar, director of Business for Shared Prosperity, a network of business owners supporting higher minimum wages. "The richest 1 percent of Americans have increased their share of the nation's income to a higher level than any year since 1928, the eve of the Great Depression"" (Bernd Debusmann, In rich America, Third World inequality, reuters.com, July 30, 2008).
Money to America
1928/29: "The major stock market boom on Wall Street coincided with a virtual suspension of new international lending and a retreat of capital. New money from America stopped going to Germany, Latin America, or Central Europe in June 1928. All the hot money went to Wall Street instead. And much more foreign money, especially English money, was also attracted by high returns as compared to bleak prospects elsewhere" (James Dale Davidson & William Rees-Mogg, The Great Reckoning, Revised Edition, London: Sidgwick & Jackson, 1992, p.207).
2009/??: ???
New Deal
"A poll this month by TIME magazine and the Rockefeller ... showed a striking shift of sentiment towards the role of government in solving the country's problems. More than 80 percent favored public works projects to create jobs and 70 percent advocated government programs to help those struggling to survive in a sinking economy marked by falling home prices, foreclosures, and sharply higher prices for fuel and food.
"TIME termed the results "a counterreformation of sorts in a Republican-led era that emphasizes deregulation and self-reliance."
"Are there parallels between the present and the mood that led to the New Deal social reforms of the 1930s? Some scholars say yes. In the words of Jacob Hacker, a political scientist at Yale University, "we have an economic order that is not well placed to deal with the challenges of the 21st century, just as back then there was a realization that the world had changed but the government hadn't"" (Bernd Debusmann, In rich America, Third World inequality, reuters.com, July 30, 2008).