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Simularity of late 1920's conditions and now
- Thread starter PAPA ROACH
- Start date
Since when were people generally happy in the past 5 years? And what is this "it" that would go on forever? last time i checked, a 20% rise in s&p's in 3 years isn't the kind of "it" that had people going loony over.
Quote from PAPA ROACH:
While prognosticating about the current situation and state of the market, I started thinking more about the roaring 20's. What a fine time it was, markets doing well, people generally happy and the sentiment was that it was going to go on forever. Not too unlike the last couple of years, and if you listen to some economist, they are saying the party will continue (I disagree).
We are already in the beginnings of a contraction. The real estate bubble was created by an over extension of credit. Same happened with commercial paper. So, now assets are declining in market value and credit, which was reliant on increasing market values, has dried up.
The evidence is in the recent and huge "mark to market" write-offs. Ten billion here, a billion there, and pretty soon we're talking about a serious amount of wealth evaporating. Similar to Japan's real estate and asset crisis of the 1990s; still in effect.
I think a market drop could happen at any moment, like in 2000. The market seems to be acting like a drunkard faced with the prospect of becoming sober... reaches for another bottle, and so it keeps stumbling on.
The evidence is in the recent and huge "mark to market" write-offs. Ten billion here, a billion there, and pretty soon we're talking about a serious amount of wealth evaporating. Similar to Japan's real estate and asset crisis of the 1990s; still in effect.
I think a market drop could happen at any moment, like in 2000. The market seems to be acting like a drunkard faced with the prospect of becoming sober... reaches for another bottle, and so it keeps stumbling on.
Interesting subject to speculate on. My take on the situation is that the next crash, if and when it comes, will be based on a dramatic loss of confidence in the dollar. Since Bretton Woods and the dollar being used as the worlds reserve currency the US has basically been able to do whatever it wanted to monetarily. So given the politicians proclivity to spend money and hide inflation behind growth, that has been the order of the day since then. Lately the money has been obtained from borrowing from the Asians and others but this seems to be getting a little shaky now. Every time some Chinese official mumbles something about divesting dollars for some other currency it causes problems in the markets. Washington and the banks poo-poo the fears but it is apparent that the markets are very concerned. With the oil producers beginning to enter into contracts for oil paid for in currencies other than the dollar, all the money that foreign countries hold in the form of dollars for the purpose of purchasing oil is less necessary to hold. If they no longer feel the need to keep dollars in their reserves it will drive the dollar down even more. Now Bernanke is making more dollars available to the ECB to sooth the credit markets. At what point will the rest of the world decide " we don't need no stinking dollars"?
A little positivity-the securitization of various bank assets has provided for the more efficient transfer of risk. Of course, some of this transfer isn't working, i.e. CDO's, SIVs, etc. as these instruments are relatively new and liquidity is drying up. Still, the fact that there are secondary markets in place is a good thing, even if they remain undeveloped and failed to price risk correctly. In the long run, derivatives markets are a very good thing, IF we don't continue with moral hazard by bailing out players in the market, and let the losers die so that risk can be priced correctly.
Also, greater global integration spreads risk further. This prevents systemic failure and localized contagion.
The most legitimate fear-a speculative attack on the dollar. That's a real black swan there. Nobody believes it could happen. But it def. could.
Also, greater global integration spreads risk further. This prevents systemic failure and localized contagion.
The most legitimate fear-a speculative attack on the dollar. That's a real black swan there. Nobody believes it could happen. But it def. could.
i suggest everybody on this thread reads 'the great crash' by john kenneth galbraith.
its a great read and covers the whole build up to the crash, the crash itself and the aftermath.
this was written in the 1950's so it still has a lot of quotes and interview research from people who were trading at the time.
the key points of the book are the leveraging ratios and the scale of the de-leveraging that took place.
also the infected systemic bullishness of the government and the banks about the markets that contributed to the wild moves up.
one interesting fact as well was that jp morgan himself was short millions of shares when in fact he was encouraging others to buy and was part of a bank sponsored team who were supposed to be supporting the market.
this came out after the crash.
a great read and i thoroughly recommend it.
another great quote was from reception desks at hotels who were quoted as asking guests ' would they like a room for jumping or sleeping'.
its a great read and covers the whole build up to the crash, the crash itself and the aftermath.
this was written in the 1950's so it still has a lot of quotes and interview research from people who were trading at the time.
the key points of the book are the leveraging ratios and the scale of the de-leveraging that took place.
also the infected systemic bullishness of the government and the banks about the markets that contributed to the wild moves up.
one interesting fact as well was that jp morgan himself was short millions of shares when in fact he was encouraging others to buy and was part of a bank sponsored team who were supposed to be supporting the market.
this came out after the crash.
a great read and i thoroughly recommend it.
another great quote was from reception desks at hotels who were quoted as asking guests ' would they like a room for jumping or sleeping'.