The Greatest Sucker's Rally in History?

[autorank]

Is real or "is it Memorex?" We've got a rally after a big crash. How close is this to the famous rally after the great crash, which ultimately collapsed? Close enough to examine.

The Greatest Sucker's Rally in History?
Posted Sep 15, 2009 01:20pm EDT
by Henry Blodget in Investing, Recession

In the past six months, Aaron and I have talked a lot about the similarity between the rally of early 1930 and the one we're having today.

The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929. The spring rally took the market up nearly 50% again, to a level that was only about 20% below the previous peak.

That rally, of course, was also the biggest sucker's rally in history. After the market peaked in April 1930, it crashed again, eventually ending up down 89% from the 1929 high and more than 80% from the 1930 high. The market did not reach the 1930 high again for another quarter of a century.

Our current rally came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%). It has taken the market up more than 50% from the low. Our current rally has also lasted slightly longer than the 1930 rally did.

Today's rally, of course, may actually be the start of a great new bull market, one that will climb the "wall of worry" back toward the previous record highs. On the other hand, it may yet also be another version of what happened in 1930.

The Money Party

[orpupilofnature57]

1. Greed has no conscience ,like a single cell amoeba ,it has no use for...

History.

[ihavenobias]

2. K & R n/t

[autorank]

5. The never ending saga

It's all due to a lack of candor and transparency. We have the mechanisms to solve these
problems but if you don't admit your problems, you can't take the remedy.

[Skink]

3. an equal but opposite reaction.

Now everybody dump at once.

[scheming daemons]

4. Your last sentence says it all.... it could go up, it could go down...

"Past performance is no indicator of future performance"

No two times are alike.


It's not 1933.

[autorank]

6. It sure isn't

"Judge Loretta Preska, who earlier this week ruled against the Fed in its long running FOIA lawsuit with Bloomberg, and demanded it disclose firms benefiting from and loan amounts handed out under various emergency order, has filed a stay on the original order and has awarded the Fed with a September 30 deadline to appeal the order." http://tinyurl.com/ngus55

" ... an industry group representing the biggest and most powerful banks on the globe, including British, French, Dutch and German as well as American banks, have issued a warning about the disclosure: If you tell who got the $1.5 tril, you're gonna destroy the world financial system. The secret is just that big." http://www.abovetopsecret.com/forum/thread496430/pg1

Nothing like this back then. The release of the information could be explosive. A group of TARP beneficiaries filed a strong motion to stop this due to the disaster it would cause the firms since the information would be "misleading" in derogating the firms value. Whoa! We're in the deep end now!

[Joe Chi Minh]

26. Wow. Makes your hair stand on end, reading that second sentence

and link, Capting. Thanks for posting it.

Liked this comment by Sundancer:

"And then the banks tell us in so many words, that they shouldn't have to disclose anything because we can't handle the truth,,, and then they tell us that the truth is so bad it'll destroy them,,, and then they expect us to sit on our hands and not even be curious...

I don't think so."

[DemReadingDU]

7. another version of what happened in 1930

and it's not going to end well

[autorank]

8. Our best shot is to stay informed and in their face, so to speak

(So nice to see you :hi:)

This is from an article I wrote a while ago. It continues to get hits to this day and really took
off at the time. I talked about the contrivance of Wall Street and the rulers, transformed into some
scary drama in which we must participate versus the underlying strengths of the United States. We
have enough to do well unless we except this burden shoved at us.

Enough of Every Thing bug Dollars Mar 2, "Scoop"

The suffering awaiting the ongoing economic collapse is guaranteed as long as we have faith in the necessity of preserving the current financial system and the assumption that underlies it: we need to pay the debt for what they spent and lost.

Why should we?

We have businesses, small and large, which meet important needs and provide services that are of value. We have citizens and organizations that want to acquire those goods and services. Paying the debt for financial institutions and investors who will do again what they've already done.

A great national debate should begin on what replaces the system that failed so miserably and it needs to start with the masses of people who actually do the work that produce our nation's true wealth.

Graph: The banks received $3.2 trillion through the Federal Reserve,
a $700 billion bailout in October, 2008 and 2009 budget item for another
$750 billion bailout. An unspecified number of citizens will benefit from
the recently passed $787 billion stimulus bill. Link

[Joe Chi Minh]

28. Small Is Beautiful becomes more prophetic all the time, Mike.

At the moment, devolving government is only an excuse for inequitable tax regimes and gives the green light to empire-builders.

However, when the Titans of the business world, corporeal and corporate, are given their cards, lawfully and democratically-elected, autonomous local governments, in touch with their communities and their smaller undertakings, might be the way forward. But the great "plus" would be curbing the ambitions of the would-be "high and mighty", always at the people's expense. A shift from the realpolitik priorities of geopolitics to local, socially-oriented politics.

[quaker bill]

9. We have Minsky and Keynes

on our side this time. The path forward will be different. It is unlikely that the DOW will breach 10,000. It is also unlikely that it will breach 8,000 again in the near term. A long and slow climb out of the gutter is the path forward. Look for dividends rather than increase in asset value. Folks will be risk-adverse for quite some time to come.

I will be selling my way out of the market over the next year. I get a far better ROI in my small side business and expect this to be the case for sometime to come. If I invest anywhere, it will be real estate, but with cold hard cash, on an extreme buyer opportunity, on property I can use personally in the business for the forseeable future.

[autorank]

16. I think that your right on real estate

Check this out. The awareness of this will rise in over the next few months but when it hits,
wow! The "Alt-A" loan holders are people with decent credit ratings that took Greenspans Gamble, 2004: get a creative loan products and divert cash from home equity to the market. It's from the NY Federal
Reserve database.

"Average Margin" is a specified amount added to
the rate of the mortgage when it "resets" a few
years into the loan.

This chart shows the percent of nonprimes resetting in the coming years. In 2009, 630,000 combined nonprime loans will reset to a substantially higher interest, 320,000 in 2010. By 2011, all but 3% the subprimes will have reset. However, starting in 2011, nearly 40% of the Alt-A's, 850,000 in all, are scheduled to reset. Families and individuals in these homes will have a home loan
well over the assessed home value and a substantial increase in interest payments. They'll be in a recession economy. http://tinyurl.com/asrj53

[RagAss]

10. All my money is tied up in cash.

[autorank]

23. He'd step on a few coyotes! n/t

[CountAllVotes]

11. this could very well be true

many people are dumping what money they might have into the stock market right now - people that normally would have absolutely nothing to do with it.

Interest rates are at a record low. If the best an investor can find with an insured bank and/or credit union is maybe 3-4% tops why tie up your money at such very low rates?

Bernanke has already stated he intends to keep the interest rates low for a very long time, thus being there are no investments worth investing in that are insured, people have no where else to turn. Tell me that this is not all being carefully planned out to extract what wealth might be left!

If what I say is true, it will only continue - more people moving into the stock market thus a faux rally in that sense alone. It is a rally based on greed as we've seen in the past.

I don't believe for one second that the economy is anywhere near being back on track.

You cannot dig a hole that took 25 years to dig and expect it to be filled back up in 9 months, or for that matter 9 years. It doesn't work that way.

Don't be fooled again IMO.

With that said, I will add that I do have hope. I always have hope.


:dem: :kick:

[autorank]

22. I agree with you on the hope

Excellent points. The hope that I have is that so many people are aware that we're in a sham
economy and that the perps have gotten the rewards for bad behavior. If there's a vehicle to
unify that vision under one banner, we can have reform. It doesn't even need to be perfect. Just
back to the 80's when only 10% of those in charge of failed institutions were crooks as opposed to
today when, if your listen to William K. Black, the corruption is endemic.

[nadinbrzezinski]

12. It depends on the underpinnings of it

remember by 1930 the economy was still contracting.

It is no longer contracting. And job losses are down.

To me the big indicator actually is consumption... blame keynes for this, but if we see a small rally on that, I expect this "rally" to continue.

There are some things that are similar, but too many that are different.

Granted. WE NEED Glass Steegal, or equivalent back in place, but that is another matter.

And yes, I have also looked at this myself... but what takes some of the worry away is that we are actually not seeing a contracting economy any longer. That said, this is a very deep recession... this close to the technical definition of a depression.

[unblock]

13. a foolish consistency is the hobgoblin of small minds

just because there are some similarities to 1929/30 doesn't mean there are no differences.

i find major upward potential to be limited, as there are many factors constraining near- and medium-term growth.

but i also find major downward potential to be limited, as there is major international determination on the part of nearly all governments to fight global recession aggressively, thus putting a floor under the market.

those who complain that the government can't print money forever because that will lead to inflation don't understand the timing aspect of inflation. as long as you're actually preventing a meltdown, printing money won't really cause inflation. inflation without growth is highly unusual. in other words, the inflation is only a problem AFTER we've gotten clear of the meltdown problem.

moreover, we probably are out of the recession. that does NOT mean that unemployment will come down any time soon, or that all is roses from here on out. all it means, roughly, is that the gdp will not be continuously negative. we will continue to have other problems, and it will be quite a while before we're back to rosy clinton levels. shrub dumped a major load on us all, and obama's got a lot of digging out to do.

i suspect will see a "jobless recovery" for 6-9 months, and then rehiring will SLOWLY resume as the economy grows SLOWLY, possibly with a negative quarter here and there. unemployment won't be under 6% until 2012 at the earliest.

[TexasObserver]

25. Concur.

Particularly with your conclusion:

a "jobless recovery" for 6-9 months, and then rehiring will SLOWLY resume as the economy grows SLOWLY, possibly with a negative quarter here and there. unemployment won't be under 6% until 2012 at the earliest.

[truedelphi]

32. Can I ask you what industry you are in?

I find your optimism strange, given that 17% of all Americans are not working, or are seriously under employed.

The research labs are for hte most part overseas. Ditto most manufacturing jobs. Here in california, the unemployment rate is skyrocketing as the 26 billion dollar deficit means police, teachers, fire fighters and project managers, social workers, etc are being laid off.

I can understand the investor class, and the brokers who work for that class, saying all is well, but am curious how you can say it.

You have got to be employed (And good for you) and I am curious as to where and what is employing you. And why you can block out the suffering that is out there.

[paulsby]

14. as a futures trader

who got my ass handed to me many times, ...

there's an old saying

rallies are sharpest in the context of a bear market.

[CountAllVotes]

20. kind of like this?

:kick:

[paulsby]

21. yup

and from a historical context (looking back over at that massive move) they don't really look like massive rallies, but they are

a 48% gain is a HUGE rally.

in about 6 months!

[Me.]

15. I Can Think Of Many Names For That Group

But SUCKERS will do just fine.

[autorank]

17. Well that depends on ...

nah, won't go there.

[Me.]

19. Yes

It does work on so many levels, but we needn't spell it out

:evilgrin:

[Warren DeMontague]

18. Market Down? We're DOOMED! Market Up? We're DOOMED!

DOOMED!!!

[TexasObserver]

24. The Suckers are those who didn't get back in when the DOW went below 7000.

[Myrina]

27. LOL, I thought you were referring to the 9/12 Teabagger Rally ...

Ooops. ;-)

[Joe Chi Minh]

29. I think it will be a different world that any recovery will lead to. And that

will be good for all of us. Even the pathocracy of Big Business, though they wouldn't be able to recognise it as such.

[RussBLib]

30. Blodget is a crook

He's barred from the securities industry for life. He's a crook, got caught lying to investors, paid a $2 million fine, so now, naturally, he's on TV. I wouldn't listen to a thing he says.

[truedelphi]

31. the number "700 Billion" came out of thin air

And this "recovery" is jobless. So we will see this "recovery" vanish into thin air, over the next three to four years. (Unless calamity hits - Silicon Valley goes down in an earthwquake etc.)

Galbraith's son not too happy -

http://www.youtube.com/watch?v=NLaKtwB_1wE&feature=player_embedded#t=278

[opihimoimoi]

33. 14,000 by June 011....