June 1, 2009

Why this blog - A Socratic monologue

Q. Okay, why are you doing this blog? Are you saying we're in for a replay of the 30's?

A. How did I know you were going to ask me that? No, I don't think things are going to get as bad as in the 30's.

Q. So you're an optimist.

A. Well, that's only mildly optimistic. I mean things in the 30s got really, really bad. For example, between 1929 and 1932, the number of cars produced declined from 4.8 million to 1.2 million ...

Q. Okay - that's pretty bad, but it's only one industry ...

A. Looking at the economy as a whole, GDP went down by 40% and unemployment went from around 3% to 24% ...

Q. Wow! That is really bad.

A. It's actually even worse than that, because back then many more people worked on farms. When you take out farm workers, unemployment hit 37% - an almost unimaginable level for us today ...

Q. You must be a blast at parties ... Well then, if you don't think we'll repeat the 30's, are you saying, in Mark Twain's words, that history won't repeat but it will rhyme?

A. Hey! I wanted to use that line!

Q. Sorry. Well, do you think that?

A. Yes. I believe 1929-1930 has a couple of important similarities to 2008-2009. First and fundamentally, there was a big buildup of debt leading up to both. This was followed by a couple of major economic problems, including many banks running into trouble and a loss in perceived wealth by lots of people. These problems in turn have deflationary implications since they lead to less credit and spending ...

Q. Could you get to the second point before I fall asleep?

A. Second, for the technical stock people, the markets in the two periods do have interesting similarities. In both, the stock markets hit a high and then had a very scary, sharp crash where the panic level was high for a short time, followed by a nice relief rally when the immediate panic abated.

In the case of 1929 this market break is what is commonly known as the Great Crash, including Black Thursday on October 24,1929, quickly followed by Blacks Monday and Tuesday on October 28 and 29. The Dow began 1929 at about the 300 level, hit a peak of about 380, and the Crash cut it almost in half to 200.

What's not as commonly known about 1929 is that the Great Crash was followed by a nice rally with the Dow almost hitting 300 again in April 1930, and, at the point where we begin this blog in June 1930, still hovering in the 270's - not that far off where it was at the start of 1929. The real damage was done in the following two years when, following a spectacular series of further declines and rallies, the Dow bottomed out at 42 - almost 90% off its peak.

More recently, of course, we had a brief period of sheer panic in March 2009 when the Dow hit the 6500's, down from a high over 14000, then had the nice rally we're currently in ...

Q. Zzzzzz ... *snort*! Ah yes, that's all very interesting, but are there any other similarities between the two times?

A. Umm ... homina homina ... other similarities will be left as an exercise for the reader.

Q. Well, have you noticed anything interesting yet?

A. In histories of the Depression the leaders of the time are commonly portrayed as oblivious to what was going on, do-nothing, and stupidly optimistic. For example, every schoolkid has seen the much ridiculed pronouncement by Herbert Hoover that "prosperity is just around the corner." Even from my limited reading so far it's clear this criticism is mostly unfair. It appears that the people in charge at the time were well aware of what was happening, and did most of the things that we're doing now to alleviate it (with a couple of notable exceptions). And as for unjustified optimism, we will see that at least in mid-1930 there was a fair amount of good news coming out about the economy. And I mean actual good news where things were improving month-to-month, not the asinine stories we see today where bad numbers are interpreted as good because they were "better than expected," and declining numbers are called good because the rate of decline is slowing down (AKA second derivative stories).

Q. Anything else interesting?

A. Well, I'm a history buff, especially New York history, so it's interesting to me to see a day-by-day chronicle of a pretty eventful period. Or, as Warren Buffett said in The Snowball by Alice Schroeder (Bantam 2008, pg. 148):

"I would get these newspapers from 1929. I couldn't get enough of it. I read everything - not just the business and stock-market stories. History is interesting, and there is something about history in a newspaper, just seeing a place, the stories, even the ads, everything. It takes you into a different world, told by someone who was an eyewitness, and you are really living in that time."

Q. I knew you wouldn't be able to go the whole interview without sneaking a Buffett quote in. Does he have you on commission or something?

A. No comment. Seriously, though, I do think you get a different feel for history seeing it day-by-day like this - less tidy, but more real. And it just might give you a useful skepticism for some of the more Panglossian commentary we're seeing today when you see that similar things were said back then - and probably with more reason!

Q. Oooohhh ... Panglossian! Fancy Shmancy! You couldn't just say optimistic?

A. So – you want to suppress the truth just like the rest of the mainstream media! This interview is over!


  1. This is a great idea! Thanks for putting this effort together.

    Question - where can I go to get access to the archives as well, either physical or online?


  2. Hi V.C. -
    As far as access, I'm doing it through the NY public library, though there are probably also some university libraries that have newspaper archives.

    You can get online access through the NYPL to quite a few newspaper archives including the WSJ. This gives you full page and article images searchable by text. To use this you have to go to one of a few branches (including the 42nd & 5th branch, the science/business one, the performing arts one, and others). Once there you can use the terminals there or bring a laptop and use wifi. You then have to go to their webpage and you're in business. You can also save pages and articles to your laptop.

    Microfilm depends on the paper you want, of course. The easiest way to find what you want in the NYPL is probably to go to the 42nd street library or the science/business one and ask the librarian - one of them will probably have it. I'm using that because I find it faster for scanning through lots of pages.

  3. Nice - I will plan a trip to NYPL...

    I'd like to save pages to my laptop to keep for reference. I wonder how easy/difficult it is to download a day's content (ideally an entire year such as 1930)...

  4. This is just totally wonderful and inspired. What jumps out at me is the eerie similarities in rhetoric. "no problems here, everything will be fine - just a hiccup or two."

    Since you are being so generous, it would be oh so fab if you could include the UK Financial Times in this since ISTM that US 2009 is most like UK 1930 (massive debtor, reserve currency, global reach)

  5. Truly a fantastic contribution you have made to the Web 2.0 world. Major Props !!!

  6. very nice. thanks for the history lesson!

  7. This is an amazing effort... thank you very much for the time you are putting into this. I am completely fascinated at the parallels to headlines today.

  8. Thanks, everyone, for the kind words!

    da55id, that's a good idea and I agree with you about the analogy (US now to UK then - see my post from June 22), but I probably wouldn't have the time to do more than the WSJ (unfortunately).

  9. Great efforts! Your line of thinking, is really interesting!

  10. Thanks alot for this Blog. Being a trader and having studied history I really appreciate to get a view of the past. I surely will review your work at my own blog (theriskblog.com)

  11. Hopefully you will continue this,yes? I'm sure that it's quite a lot of work but I for one find it VERY interesting, both for the obvious parallels and the not-so-much.Great stuff!

  12. Great idea - will be posting this in my blog


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  14. Quick comment in case you don't see the one I made under a random post. Valuations today are closer to June 1931 according to the Shiller P/E. In June 1930, multiples were around 22. Today they're at 16, slightly above June 1931 levels of 15. The time elapsed since the market's high is also closer to June 1931 than June 1930. Wouldn't it be more appropriate to see stories from 1931?

  15. Matt -
    Interesting point (about 1931 possibly being a better analogue to now). I guess there's a variety of things you could look at. For example, I was thinking of the March crash or perhaps the September Lehman-related one, where things fell off a cliff very quickly, as the analogues to the Great Crash. So, I thought 1930 was a pretty good match considering that both now and then we got a nice relief rally following the crash. You've got a point about valuation, although that jumps around a lot - at this point in June 1930, the PE10 is probably in the high teens. An additional point in favor of 1931 is that the banking crisis then really didn't mushroom until late in 1930 (although signs were starting to appear earlier), whereas now it (hopefully!) peaked last fall. I think both years would be pretty illuminating, but just happened to be reading 1930 and noticed there was lots of interesting stuff ... so here we are :)

  16. What a great idea...I will definitely come back to this blog. Could you comment on the inflation verse deflation debate we are having now?

  17. love the blog, thanks for taking the time to do it.

    i knew there were obvious parallels, but reading this day by day is blowing my mind.

  18. One of the neatest blogs I've come across. Will be linking in the future.

  19. Does anyone know the previous facts from June 1930?

  20. Phenomenal blog - I work in finance on the west coast and I find your reports from the 1930s fascinating. I really enjoy history as it provides a living record of what we are sure to experience now and in the future. Newspapers in particular do tend to reflect their particular moment in time. I am starting to get quite wrapped up in this news. I wonder, will Vanadium and Radio rally tomorrow?

    Thanks for the excellent work!

  21. The Dow spring 1930 rally lasted for 106 trading days, we hit the 106 trading day mark for this rally on Aug 9. So far the this rally is exactly tracking the 1930 rally. Let us see if the decline follows 1930 as well.

  22. It would be useful for all of us to see what the 1930 market was doing in chart form. Would give us a better feel about what was about to occur compared to the daily news

  23. fabulous. how the internet ought to be used.

    consider it bookmarked.

  24. Keep up the good work! Great idea and sorely needed.

  25. Imaginary Gann

    On July 8, 1932, the Dow Jones Averages made a low at 40 and 1/5. This was equal to the April 1897 low and was successfully tested. Several bear market lows were tested and broken on that campaign. In fact we can track a general uptrend of higher lows from this April 1897 and July 1932 low up through the May 2000 highs. This current bear market campaign with highs in March of 2000 and May of 2007 (2007 higher closing but lower intraday) has broken past support similar to our crash in 1929 and subsequent rally. The key will be to see what support holds. So far, the 2002 S&P 500 low of 768 obviously did not hold.

  26. You my friend are a legend.

    Please keep up the good work! I don't think i'd have access to this information elsewhere.

    I also like your commentary on each event. Eg, the "Ay Chihuahua! Dept" and the others.

    Thanks from a Gen Y.

  27. This is brilliant and I think we will see history rhyming very very soon!

  28. I absolutely love reading these! Thanks for all your effort. Truly fascinating!

  29. I have been working on a historical 1931 project for some time and wish I would have found your blog sooner. I have posted this on my news page and read it along with the daily news.

    This is great for me, thanks.

  30. For context while reading the market wrap-ups:

  31. Incredible, today (30-06-2010), a year after you published this post, we are re-living the whole story.

    It is said that Lord Keynes once spoke of the "Super-Asinine". Should we speak of the Hyper-Mega-Asinine?

  32. I have posted this on my news page and read it along with the daily news.I don't know what to say except that it caught my interest and you've provided informative points.

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  33. This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone.

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  34. Interesting history and comparison. What does this tell us about the stock market moving forward?


  35. How does history help us with understanding the stock market future?


  36. Instead of being a history buff, just buy low and sell high. Remember that there is nothing new under the sun, just the form it comes in. It's the same with plumbing and copper repipe

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  38. It is a very interesting concept, it is a fantastic idea, plus the reading is excellent.

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  39. ell, that's only mildly optimistic. I mean things in the 30s got really, really bad. For example, between 1929 and 1932, the number of cars produced declined from 4.8 million to 1.2 million ... claremont plumbing