1930s Déjà Vu

The excerpts below come courtesy of David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates.

“An old contact of ours at Merrill Lynch pointed out these articles from the Wall Street Journal after the initial post-crash rally that took the market up some 50% from the interim lows. Sounds eerily similar to what we hear today:

August 28, 1930:

There’s a large amount of money on the sidelines waiting for investment opportunities; this should be felt in market when “cheerful sentiment is more firmly entrenched.” Economists point out that banks and insurance companies “never before had so much money lying idle.”

September 3, 1930:

Market has now reached resistance level where it ran out of steam on July 18 (240.57) and July 28 (240.81). Breaking through this level would be considered a highly bullish signal. General confidence that this will happen based on recent market action; many leading stocks have already surpassed July highs. Further positive technicals seen in recent volume pattern (higher on rallies and lower on pullbacks), and in continued large short interest.

Some wariness based on recent good rally recovering all of drought-related break; some observers advise taking profits on at least part of long positions, to be in position to rebuy on good pullbacks.

Most economists agree business upturn is close; peak in business was reached July 1929, so depression has lasted about 14 months. “Those who have faith and confidence in the country and its ability to come back will profit by their foresight. This has also been the case over the past half century.”

Harvard Economic Society points to steady rise in bond prices as favorable for stocks. Says there is “every prospect that the [business] recovery … will not long be delayed,” although fall period may not be strong as expected. Notes worldwide decline in business, but 1922 recovery demonstrates U.S. due to “great size, natural advantages, and diversity of conditions … can lift itself out of depression without the stimulus of improved foreign demand.”

“We only know now with perfect hindsight what these pundits did not know back then – that there was another 80% of downside left in the bear market.” Source: David Rosenberg, Gluskin Sheff & Associates – Lunch with Dave, September 4, 2009.


Originally published at Prieur du Plessis’s International Investment Blog and reproduced here with the author’s permission.