Friday, June 27, 2008

This Stock Market is Similar to 1933

I've seen some commentary recently about how bad the market is, comparing it to the previous worst start to a year, 1933. That sounds ominous since everyone knows that 1933 was in the middle of the Great Depression. Unfortunately for the gloom and doom crowd, 1933 also proved to be the bottom of a bear market and stocks subsequently returned 195% over the next 3 years. History never repeats exactly, but it just goes to show that, even in the depths of the Great Depression, the stock market was still able to pull off a pretty impressive bull market.

We have come through this in better shape than most investors because of our exposure to commodities, but we aren't immune to stock market declines. We hold larger positions in commodities than most advisors but the majority of our assets are still in stocks. The key though is to get through this bear market without taking a big loss. And so far we've been able to do that. Hang in there; if you can get a nearly 200% rise in the market during a depression, surely we can get a rally too.


moneythoughts said...

Blaming the Fed is a little like blaming the doctor for smoking and being over weight and not eating right. The doctor can only do so much, the patient has to do some of it.

The Bush administration got us in a needless war in Iraq, they wasted a lot of money that could have been better spent on our infrastructure. Both parties are resposible for the oil crisis. I'm 65, and I remember 1973 pretty well. We, the USA, had an opportunity to get ourselves independent of foreign oil, but our leaders for the last 35 yrs have let us down. With all the imports from China and other countries, plus all the imported oil, plus a budget and trade deficit, it is no wonder that investors are moving to commodities. The US dollar is under tremendous pressure. If we had fixed one thing, oil independence, we would not be facing the problems of inflation that we will be facing as the price of gas and diesel work their way through the economy. Don't blame the Fed, they are between a rock and a hard place. They kept interest rates down to help us through the financial crisis. Soon, they will raise the Fed funds rate.

Joe said...


I don't think your analogy is accurate. The Fed is like a doctor who straps you to the table and gives you intravenous drugs against your will.

I agree with you that we have wasted a lot of money in Iraq, but I would not be in favor of running up the deficit on infrastructure either. I don't know if we could have achieved energy independence no matter what we did over the last 35 years but certainly we could be importing less oil if we had a rational energy policy at any point during that time. On the other hand imports from China do not bother me one bit. Unlike the budget deficit, the trade deficit is not an economic problem about which we should worry.

The dollar is under pressure specifically because of Fed policy and if they are between a rock and hard place, they are the ones who placed us there. Keeping interest rates down to help us through the financial crisis is exactly the problem. Keeping interest rates artificially low is the reason our country is in debt up to its eyeballs. Americans, given the opportunity to borrow ever devaluing dollars at low rates, have reponded in a rational manner. If the Chinese want to keep accepting green pieces of paper with no intrinsic value for goods with real value, we should do that until they stop.

I wouldn't count on the Fed raising rates anytime soon. My guess is that it won't happen until after the election.