Thursday, October 9, 2008

Just in case you wanted to know...

So you are probably tired of hearing about how bad the economy is and would just rather see more adorable pictures of Parker, but Parker's not hear right now so your stuck with me thinking. I just thought I'd share some recent insight I've had lately on the subject of the current economic decline. As well as some very scary similarities to a time period most people alive today didn't see.

How far will the stock market drop?
During the great depression, the stock market ultimately fell 90% of it's value (It crashed from OCT 1929-1932, it took nearly 3 years). Our current market is down about 39% (Since the all-time high exactly one year ago today, Oct 9th ... Don't tell me that isn't a little weird!)

Are speculators to blame?
The stock market surged nearly 120% in the four years leading up to the 1929 crash. In the four years before our current decline (Mar 03 - Oct 07) the market rose 80%. However this doesn't nessesarily mean they were overpriced in either time period.

What is one of the major causes (Debatable) that lead to the crash of the great depression?
Before the depression large increases in the "number of" and "investmet in" Public utilities, utility holding companies, and investment trusts. Which were also highly levered using large amounts of debt and preferred stock. These companies attracted speculators because they were mostly unregulated. When the government started to crack down on them, those speculators ran like cock roaches to light. Forcing all investors to cover there extended positions bringing down the whole market.

Does this sound familiar with our huge investment banks, and mortgage securities? A huge move to deregulate banking and fannie mae and freddie mac over the past decade led to speculation and overleveraged positions. And again forcing all investors to cover there extended positions bringing down the whole market. Basicly, the mortgage market got "infested" - not to be confused with "invested" :)

Absolutely nothing :) It's just for interesting thought really. However no matter how bad you think things are now just remember they could be much worse. We currently don't have the unemployment of the depression which peaked near 25%, (although this will be our next growing challenge in the months to come) or the lack of resources to turn us around. However good leadership in the home and from government will be key to any successful recovery.

Last thoughts...
I could go on but I find the longer my posts are the more people skip it. So if those few ideas sparked any curiousity feel free to explore it and please let me know what you find.

Sources of Great depression info (if interested)

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