Perspective

[mbarrick]

Friday the Dow Jones Industrial Average dropped 390 points, today it is down about 300 points. In September 1929, on the record high prior to the "Black Tuesday" crash of October 29th, 1929 that heralded the Great Depression, total volume was 386 points. But while a 390 point drop is greater than the total volume of trade on any given day in 1929, it is only about 4% of the total volume of the market today. The drop in 1929 was in the neighbourhood of 60% on Black Tuesday, bottoming out at 10% of the 1929 peak volume by 1932. That would be the contemporary equivalent of a 5,500 point drop followed by a slow sinking to a total volume of about 900 points.

It's a shame they apparently don't teach math and history anymore. Things would be much less panicked on Wall Street.

Comments

Another perspective

[reive-d.livejournal.com]

It's worth noting that back in 1929, however, companies weren't trading at 30-40 times earnings.

30 - 40 times earnings. That means that if you'd like to make money based on dividends, you have to hold the stock you've invested in for better than 20 years (assumming a small gradual increase in stock price.)

The stock market today, with it's huge gains of the past decade, is based entirely on the the principle of seeing a stock increase in price, and then selling it. Mutual funds are based on the idea of having a fairly broad investment base, watching those stocks increase over time, and eventually selling them.

What happened to the days when you could own stock and live off the dividends? The only people really able to do that these days are those who got in on the "ground floor" of new companies, or a decade or more back for older, established companies.

Much of the reason for the panic on Wall Street is that people realize this, they realize that many could argue that the market is vastly and artificially over valued. And they're worried that at some point everyone is going to realize this, and that the market is then going to crash.

Blame the internet. Blame day traders. Blame every trading firm that's shoved the idea of movement, movement, movement down everyone's throat.

I think the reason some people are panicking is beacause they have studied history. The market for Tulip Bulbs comes to mind...

Re: Another perspective

[mbarrick.livejournal.com]

Ahhh, but in that regard it's not so different than 1929. The market *was* artificially overvalued, due to the post-war boom, and there were people saying as much as early as 1928. In terms of percentage of total volume nothing is terribly different in the market. If one owned enough stock that it's trade accounted for, say 0.1% of the market in either 1928 or now, an increace in that stock would represent the same sort of proportial gain in adjusted dollars. What *is* different now is the willingness of institutions like the Federal Reserve and the U.S. Federal Gov't itself to "monkey" with interest rates, bail out banks, fabricate wars and what have you in order to stave off a market-driven depression. I hesitate to go into detail here because I'm loathe to have the 'Oid-balls jumping on it and proclaiming me a fellow conspiracy-nut.

What it comes down to, is roughly the same amount of *real* wealth exists, cut up into much, much smaller chunks. The smaller chunks allow for a marginally greater amount of real volume since it opens things up to 2-bit players, but the big-boys still hold all the cards that count. If *they* panic *then* the shit will hit the fan. By comparison this is just a fart.