Great Depression

Should we be tightening our seat belts?

After surviving the start of the Second Great Depression, and living in its first great bear market bounce/short squeeze, where now all the attention is focused on a collapsing Europe, many could be wondering how, if at all, it would have been different to have lived through the first Great Depression. Luckily, courtesy of the recent release of the BIS's full annual reports, history buffs can now replay, year by year, the events in world capital markets from 1931 onward. We have put particular emphasis on the dark days of the 1930s. Below we present the first several such years as seen from the perspective of the BIS. Note the endless similarities - in fact one could say the only difference between then and now is the lack of "liquidity providing" algos (soon, there will be an iPad app for that) to front run slow and stupid retail/pension/mutual fund money. Pay particular attention to the role of gold in the crisis period, the amusing reference to FDR's confiscation of gold in 1933, and how the mood of insecured optimism shifts to one of endless gloom, and ends, as everyone knows, with World War 2.

Paul Farrell's latest perspective: "Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls. Dow sinking below 6,470...The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ... This is no buying opportunity, this game's in the refrigerator, call it." So much for Paul's chances of ever getting invited on CNBC.

Buckle up ...

The Fib retracement from the highs to the lows in the cycle is now nearly 61.8 (at 1,228). The retracement from the highs to the lows in the first wave of the Great Depression peaked just below 61.8. Does history repeat itself, or come in tidy little Fibonacci packages? Are today's math Ph.D.'s even aware of retracements, or do they just know how to buy, buy, buy on ever declining volume?1,228 is the magical number on the S&P. We'll find out soon enough.

Bill Hemling, a widely respected agricultural economist, told the Kansas City Star that “we’re heading for a recession we haven’t seen the likes of since the 1930s.” Let's pray he is is wrong — again.

Add the Maestro to the list ...

"The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year." - John Williams, ShadowStats

Yields are much lower today and are trending down again despite the significant upward yield trend back then. So is this a genuine early economic recovery, or a sign that the modern stock market tends to be a capital-gain seeking momentum machine with little regard for underlying fundamentals? Yes, interest rates are low, but they were back then too, and David Rosenberg suggests most current corporate bond yields are a lot more attractive than yields of the same companies' stocks.

Even as the cataclysmic events of last year fade into memory and most pundits are convinced that the government alone can push the country into prosperity, if it only wasn't for that pesky unemployment number that just refuses to cooperate, yet another comparison with the Great Depression emerges, one that shows that the current period is in fact even worse than what occurred in the years after 1930. Moody's has released an analysis which shows that the most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

"To me, the clearest value in these charts is yet one more piece of evidence that this recession/depression is very comparable to the Great Depression, despite the claims of many people that this period is "nothing like the Great Depression." And I did check the data for the years since WWII and found no other dividend declines near as large as today's, so this is not a normal recession pattern." - Thought Offerings

With a subtitle like "From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again" run, don't walk, to your nearest kiosk and buy Matt Taibbi's latest piece in Rolling Stone magazine.

With a subtitle like "From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again" run, don't walk, to your nearest kiosk and buy Matt Taibbi's latest piece in Rolling Stone magazine. One of the best comprehensive profiles of Government Sachs done to date. Speaking of GS, they sure must be busy today, now that Bernanke is about to be impeached and take the fall for all their machinations.

No less an authority than FDR's Treasury secretary and close friend, Henry Morganthau, said in 1939: "We have tried spending money.

No less an authority than FDR's Treasury secretary and close friend, Henry Morganthau, said in 1939: "We have tried spending money.