How Today’s Market Compares To 1929

IWB ^ | Daniel Carter

[davikkm]

The stock market has surprised many this year by continuing to skyrocket to new all-time highs. Consumer and investor sentiment is high, the unemployment rate is low and Wall Street is excited for potential corporate tax cuts. Currently, things could not be going much better. However, I cannot help but notice that the stock market resembles the overvalued and excessively bullish conditions that led to modern history’s most severe stock market crash from 1929 to 1932.

Extremely Overvalued

One of the most striking similarities between today’s market and the market of 1929 is the extreme overvaluation of stocks. One of the most widely used metrics for measuring the valuation of stocks is the Cyclically Adjusted Price-to-Earnings Ratio (CAPE), which is shown below. It has been an excellent predictor of long-run returns. A high CAPE means low returns over the next 10 years and vice versa.

[neverevergiveup]

“The other big difference is the government IS the economy..”

I agree. They tax, print money, and prop up markets in order to promote the illusion of prosperity.

[Night Hides Not]

Also a lot of individual investment is in retirement accounts that can’t use margin accounts.

Excellent point. Add to that the proliferation of mutual funds and ETF's, as opposed to individual stocks way back when.

I was working for EF Hutton in 1987, and I still remember Black Monday in October. Didn't make a whole lot of money (I was a lousy closer back then), but it was a good experience.

I'm now putting that experience to good use in my new career as a bartender at a wine bar (I was able to exit the rat race earlier than I imagined). LOL, it's a helluva lot easier to sell good wine than "blue sky."

[trebb]

Gotta find some way to leverage things to his benefit - the sky seems to have stopped falling and the ozone hole is shrinking.

[aquila48]

“When they do this, they select a few parameters and ignore all the others.”

Definitely the case with this guy. First he asserts that it feels like 1929. Then he tries to make his case by comparing the CAPE of now vs 1929. Then he switches to margin, but he stops comparing it to 1929 (since it would not help his case) and instead compares it recent crashes. And even those comparisons are deceptive. He switches from ratios (PE) to absolute values (margin). If he had used margin to market value ratio, he would have seen that that number isn’t that out of wack today.

In summary, not a very convincing case.

[generally]

I think that’s one factor among many.

Disclosure: I have ZERO expertise in the market. But I do have some common sense.

I thin another factor is that the Trump economy is getting more people off of the public dole and into the workforce. It’s getting more illegals off the public dole and out of the country. That has to help the market, IMO.

My common sense tells me not to have all of my money in the market. It also tells me to have as little debt as possible.

My advice to my family and friends is:

1. Pay off your credit cards. Don’t carry a balance.
2. Pay off your mortgage and any other loans you have.
3. Put money in savings so you can handle emergencies.
4. And most of all, DO NOT BORROW MONEY FOR NON-ESSENTIALS. About the only thing you should borrow for is a house (an affordable one that you won’t have trouble making payments on), a car if you need it to get to work (again, an affordable one, not a status symbol), and possibly an education (but in recent years, the value of education in relation to future earning power has dropped, so be sure you aren’t “investing” in a crap degree that will cost more than it’s worth).

[Seruzawa]

The name investmentwatchblog attempts to lend an aura of respectability but it’s just another “sky is falling” nut site. It’s amusing how sites like this and Debka and ZeroHedge can go on year after year with lurid predictions that never come true and yet have a following.

[Ted Grant]

I agree 100%. I carry no debt and it’s wonderful. Debt is starting every month in red ink.

I have some non-necessities and luxury items (my Rolex watches, my Tivo, for example), but they were paid for in cash. The Tivo has a lifetime service on it (paid in cash) and no monthly fees.

[wbill]

Agreed, that's a lot of money.

However, if the GoP(e) collectively manages to pull their heads out of their backsides and amend tax reform so that corporations will bring back in some of their money from overseas, 250B will look like a drop in the bucket.

Couple of trillion, non-government spending, will put the economy into overdrive. Might get interest rates back to where they're supposed to be, and get the real unemployment numbers - not the published nonsense, but the real ones - back down to a decent scale.

But then, the bears would start worrying about inflation and an "overheated economy". Different story, same gloom n' doom.

[wbill]

Before the 2016 election, I thought that Trump winning would mean a downturn. Figured that he'd raise interest rates and give the market some long-overdue tough love.

I'm glad to be wrong, though interest rates have gone up. Market has shrugged off the tough love, guess that business likes de-regulation a whole lot more. I'm not complaining.

[Oatka]

Where I live in the SE, you can't throw a rock without hitting construction, or a "Now Hiring" sign. Things are going gangbusters, at least for the moment.

Same thing in Utah.