November 21, 2008
This is a good time to step back from the present, to consider the historical perspective of this market. Until now, 1929 was the catastrophe of record as losses spread from the stock market to the consumer market. The banking system crashed, unable to meet the demands of depositors for cash. Unemployment soared to 25 percent. Economic recovery did not take hold until the 1940s.
Everyone knows the measures, invented by economists and implemented by government, to free the future from recession and deep depression. Sure, some have been modified in recent years in response to market globalization and the pressure of our financial markets facing international rivals. Whatever, be it that, or blame the housing bubble, few expected to see 1929 again.
Nevertheless, look at the DJIA today; compare its current price decline, from October 2007, with that of the 1929 debacle. Although the recent correction was gentler at the beginning, the gap is closing. On Friday, the DJIA closed at 57 percent of its peak value, while the earlier cycle, also 284 trading days after the peak, was at 49 percent of its 1929 value.
DJIA 6.54 percent
NASDAQ 5.19 percent
S&P500 6.32 percent