Continuing on the idea of the economic supercycles … And just hypothesizing that the theory is valid, let’s have a look at history.
The last major winter, 80 years ago, was around the market crash of October 1929. In one week, the stock market lost more than 50 percent of its value. Leaders of the stock market have intervened during that week, trying to stop the collapse by buying a large part of the securities with which the market was inundated. The free fall stopped and slowly, until March 1930, the market recovered half of what it had lost. However, at that point the market lost its foot again and it slid continuously for the next 2 years, until the Dow reached such low levels like there haven’t been seen since the 19th century.
Will the history repeat itself again? There are some similarities so far. The stock market crashed in 2008 and lost about 50 percent of its value. Then it started to pick up and by now it recovered about half of what it had lost.
What would make the market continue to grow? How can we create the value that would fuel that growth? It will be difficult.
Real unemployment in the US is above 20% (you may recall that the official numbers only count those actively looking for work – the rest are known as ‘hidden unemployment’ and are not reported in statistics).
10 million households in the US are in negative home equity position (i.e. their property values less than what they paid for it) and if they paid little or no down-payment, then there is no incentive for them to hold on to that house.
On the positive side, the US government may spend further trillions of dollars to create jobs and stimulate the economy.
Additionally, the situation in Canada is more stable and a major drop in the US may not translate into a crash here.
Which of these factors will weigh more?
Being prudent in these times is the way to go.
Next post: is it all bad news, or is there opportunity as well?
We’re so different now than in the 1920’s. Sometimes I think everyone has learned from history, but at the same time we keep seeing market crashes from time to time. People haven’t changed but my hope is that governments are better prepared.
i went to a real estate seminar and they are sure its time to buy.
i don’t know if its because they have an interest and you hear that story all the time that people should invest when it is recession but the reality is you never know. i want to invest but im telling all my frineds to wait more.
I’m an investor myself and I have decided to wait. Things are too shaky now. Whole countries are going bankrupt and this to me is serious stuff. The US owe 1 trillion to China. If they get called on it, hell breaks loose. I don’t think China would do it, because they would lose their biggest market, but it tells you that the amount of debt in the world is a bomb ready to go off.
Everything passes even this. Tighten the belt for a bit and it will get better. I wish the government would stop saving big business and pay some attention to us.