REMEMBER: In 1930, They Didn't Know It Was "The Great Depression" Yet

In the past year, we’ve written a lot about the similarity between the rally of early 1930 and the one we had through April of this year.

The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929.  The spring 1930 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.

The rally that recently ended in April 2010 came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%).  It took the market up nearly 80% from the low!  The recent rally also lasted longer than the 1930 rally did–a year, as opposed to 6 months.

The 2009-2010 rally that ended in April, of course, may actually be the start of a great new bull market, one that will shake off the current “correction” and roar back to the market’s old highs.  On the other hand, it may yet also be another version of what happened in 1930–the start of another bear market that will take the market down for years (or even, gulp, to a new low).

Importantly, we won’t know for sure what today’s market is until we look at it with the genius of 20/20 hindsight.  As Peter Schiff pointed out yesterday, even as late as 1931, they didn’t know they were in a “Great Depression” yet.  On the contrary, the promise from the White House was that “prosperity is just around the corner.”

Don’t believe it?  Check out this excellent compilation of New York Times clippings from early 1930 put together by Dan Alpert of Westwood Capital.  There is nary a hint that anyone had any idea about the disastrous decade that was to come.

Dan’s complete compilation is contained in a broader research piece, which we’ve embedded at the end.  The slides below contain excerpts from February-April, 1930.

Is the current pullback just a “correction” and a “buying opportunity”?  Or, as in the spring of 1930, is it the start of the REAL market crash?  You be the judge.  Meanwhile, here’s what things looked like in the spring of 1930…

The Greatest Sucker’s Rally In History, Play By Play >

February 2, 1930: Market recovering faster than expected

February 2, 1930: Banks Have Started Hiring Again

February 5, 1930: The Cash On The Sidelines Is Coming Back!

February 7, 1930: Easy money is driving a rapid recovery

February 14, 1930: Yessiree, the economy's recovering!

February 16, 1930: Speculators And IPOs are coming back

February 28, 1930: Uh Oh, The Market's Getting Overbought

March 2, 1930: Loving The Volatility

March 4, 1930: That 1929 thing wasn't a crash--It was just a buying opportunity!

March 6-7, 1930: More easy money to make sure the recovery continues

March 7, 1930: The crash really wasn't so bad after all -- much ado about nothing

March 9, 1930: Even unemployment is finally under control

March 12, 1930: But what happens if foreigners stop financing us? Oh, don't be silly, it's a new bull market.

March 14, 1930: The Fed is making absolutely sure the economy is rock solid

March 22, 1930: Yes, as with today, there was some debate about whether it was a new bull market or a continuation of the bear

'Traders found the action of the stock market yesterday answerable to the description of the gentleman who mounted his horse and rode madly off in all directions...

As to whether the present is a bull or bear market and whether it is of the creeping or roaring variety, depends large on what stocks are being held. A case could be made for any one of the four hypotheses.

Source: New York Times
Compiled By Dan Alpert of Westwood Capital

March 25, 1930: More Green Shoots!

Wall Street was in a cheerful frame of mind as a result of numerous vague reports of improvement in business and industry, but the strength in stocks was generally ascribed to the more aggressive activity of professional interests committed to the advance.

Source: New York Times
Compiled By Dan Alpert of Westwood Capital

March 26, 1930: The New Bull Market Is Great For Business

The boisterous conduct of the stock market lately has given rise to apprehension in some quarters that a new and unbridled wave of speculation is about to start. The specter of a voracious market which once more will gobble up all available credit, nullifying the efforts of the Federal Reserve Bank to provide business with easy money, is being paraded.

Leading bankers profess to see no such alarming symptoms, however. They say a rampant bull market
can hardly be expected with business conditions as they now are. On the other hand, a buoyant market will have a valuable effect in lifting public morale and stimulating business optimism.

Source: New York Times
Compiled By Dan Alpert of Westwood Capital

April 16, 1930: But wait, are the fundamentals really that good?

The appearance of several reports of quarterly earning in the last few days, with the expected appearance of many other in the net few weeks has had a decided effect on the market action of numerous issues, according to brokers. Weakness in certain stocks is believed to be in anticipation of poor quarterly reports, while other issues, which are showing strength, may make an even better showing than they did in the first quarter of 1929, the brokers say.

On the whole, Wall Street has discounted the effect of smaller earning during the first quarter of this year, it is contended, while an increase in the earning of certain companies would be decidedly encouraging in view of the slower trade this year. The fact that several of the most important corporations have been able to show an increase in share earning in the face of these conditions has been reassuring to a large section of the financial community.

Source: New York Times
Compiled By Dan Alpert of Westwood Capital

April 17, 1930: The End

The sucker's rally peaks.

The DOW hits a level it will not see again until July, 1954.

So, have we seen this movie before?

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