How Long Will Wall Street Ignore Y2K?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
The stock market continues to climb and most market analysts see no end in sight for the winning ways of Wall Street. How will the average American stockholder, who envisions building a substantial retirement nest egg through the stock market, react when the inevitable Y2K-induced crash comes? Will we see the same kind of despair that led some to jump out of skyscraper windows in 1929?
-- Nabi Davidson (email@example.com), April 16, 1998
A Kentucky news paper carried an interview with a couple of economists (http://www.kentuckyconnect.com/heraldleader/news/040398/b1bunny.shtml) on April 3 in which the stock market was described as an Eveready Bunny It just keeps going along no matter what and The best is yet to come!
These people are delusionary. The Piper always collects. The rubber is stretched too thin on that balloon. I do not have nerves of steel and shut down my portfolio at DJ 8800. I no longer jump at the sound: Now the news from Wall Street!
Does anyone really believe that weve *licked* inflation? Does anyone really believe that *low interest and easy credit* will sustain growth FOREVER? If not, then when? At DJ 10000? The WSJ reports that the market shrugged off the Asian problem as we sped through 9000. The New York Times forum page recorded messages from people who were clearly giddy with greed: Ten thousand by July one! I am making so much money!!! It might interest these people that on July one, 46 states kick in with their 1999 budgets. Just think of all those nines plowing into the bowels of all those creaky mainframes. Stay home.
People are borrowing money (Hey! No problem! 125% of your home value! Call us at 1-800 GET-IN-OVER-YOUR-HEAD-AND RISK-EVERYTHING) and investing it in the market to make 40%. Hard to resist, and the news of the Travelers and el Banco merger just fuels it. It will take a decade to get both companys computers to talk to each other if they do not first go up in a puff of Millennium smoke.
How will the average American feel? Betrayed. Cheated. Angry. There will be no discussion of greed. Greenspan and Rubin will report that they are mystified because the fundamentals are still sound. Clinton will take another trip to Africa to check on the $1,000,000 worth of computers he had the American taxpayer give them in an effort to lure them into the same condition of over-reliance on computers that we did to ourselves without any help.
But... if it will make you feel better... people will not be jumping out of windows. Tall buildings (temperature controlled with the aid of imbedded chips, made secure by the miracle of embedded chips, serviced by elevators controlled by imbedded chips, linked to the world by telephones liberal in there use of imbedded chips) do not have functioning windows.
-- B.T. Martin (firstname.lastname@example.org), April 16, 1998.
Even without Y2K stockmarkets are overvalued. Sometime last year Alan Greenspan described it as "irrational exuberance" (at about 7K on the Dow!)
I'm convinced what we're looking at is a bubble to match the last one in 1929. I've read and re-read J K Galbraiths "the Great Crash 1929" and although history never exactly repeats, the similarities between today and then are worrying. I can see no way that it can end other than by crashing when everyone with money in the market suddenly wants it out. All the mass psychology that applied in 1929 still applies today.
As to what will burst the bubble: who knows? Realisation of Y2K might; so might any number of other things. And when? October this year or next would be the poetic answer. The anniversary itself might be sufficient.
By the way, if you read the book you'll discover that masses of bankrupts jumping from skyscrapers is a myth. The suicide rate in 1929 showed no noticeable departure from its trend, either in the USA as a whole or New York in particular. The suicide rate did, however, rise in the depression years that followed.
-- Nigel Arnot (email@example.com), April 16, 1998.
I don't know about Wall St---but the Toronto Stock Exchange(TSE) has 2 days ago announced it will have to spend $47 million (Cdn) to fix the y2k problem(Globe abd Mail 14 aprl 98). A few days earlier the same newspaper reported that they would spend $10 million Cdn. This is the cost(?) for one small segment of the financial system of one small country.
-- Jan Czarnecki (firstname.lastname@example.org), April 16, 1998.
This may be somewhat long - but I trust you will find it interesting. The question is "How Long Will Wall Street Ignore Y2K?" The answer is, "Like any hardened gambler, they will ignore it until the money is gone."
"At the end of 1929, the New York Times looked back on the year to identify its biggest story. It was Admiral Byrd's trip to the south pole.... The smartest reporters in the world could not see the importance of the stock market crash in 1929. Their grandsons and granddaughters are unlikely to do much better in the 1990s." --- The Great Reckoning - pg375 (1993)
Now as then, we "always" expect the market to push back up the hill from any significant drop. Conventional wisdom tells people to ride it out. This, most people are prepared to do according to a USA Today article a couple of months back. The majority of people said they would "buy into" any significant dips in the market if they had the cash. These are the same people that Arthur Levitt Jr., chairman of the SEC says, are suffering from financial illiteracy (USAToday 3/27/98).
"That we are having a major speculative splurge as this is written is obvious to anyone not captured by vacuous optimism. There is now far more money flowing into the stock markets than there is intelligence to guide it." --- The Great Crash 1929 (pg xiv) This was in the preface to the most recent reprint of this book. (1997)
People today have more money than wisdom. Japan is in the midst of a depression. In the past two weeks their government has intervened in the foreign exchange to prop up the yen and in the stock market to attempt to interest buyers. They have done this with public savings funds - (ala Social Security).
The chairman of Sony announced to the world that Japan was on the verge of financial collapse and what does Wall Street do? It shoots up over 100 points. Crazy. Simply crazy...
"The depression of 1929 did not begin on Wall Street. It did not even begin in 1929. It began in 1927 when economies at the periphery, like Australia and the Dutch East Indies, began to wind down. By 1928, the slump had taken hold in Latin America and Eastern Europe. Brazil, Argentina, Finland, Poland, and even Germany were all in depression before Wall Street's bull market ended." --- The Great Reckoning (pg 378) (1993)
"IN THE LATE 1920s stock market speculation had become Americas favorite pastime. In early 1928 the rollercoaster market climbed with great fervor; records were set for gains, losses and volume regularly. During March 1928 the market surged ahead 10 percent, only to retreat by nearly as much during June. On June 12, for the first time, the volume topped 5 million shares in what was called a collapse of the market. The collapse was short-lived. By years end the market had risen over 33 percent, with almost a billion shares traded, breaking the previous years record by nearly 350 million shares.
After another 9 percent gain during January 1929 some noises were made about the need to check excessive speculation. Widespread uneasiness ensued. On March 26, over 8 million shares changed hands. At points the market was down by over 3 percent. About that time, Paul M. Warburg of the International Acceptance Bank said that if the unrestrained speculation was not halted there would ultimately be a collapse, which would bring about a general depression involving the entire country.
The market recovered, and the spoil sports were roundly criticized. Once the feeble attempt at bridling the market was defeated, it surged ahead unfettered. During the summer months of June, July and August the market shot up by nearly 25 percent. Unbeknownst to the celebrating crowds, the horrific death throes of the great bull market were about to commence.
In his infamous September 5 speech, Roger Babson observed, Sooner or later a crash is coming, and it may be terrific. He predicted that factories will shut down and men will be thrown out of work. That same day the market dropped over 2%; Babson was publicly and repeatedly reviled.
The market declined steadily through September and October. On October 19 the market took another 2 percent drop. Four days later, with the ticker falling hours behind, the market dropped nearly 8 percent. The next day, October 24, now known as Black Thursday, nearly 13 million shares changed hands in a stock freefall, which crushed the previous volume record of panic selling set on March 26 by over 4 million shares. The bankers saved the day by making auspicious purchases of stocks. The flow of losses was stemmed at 3 percent for the day.
After a couple of calm trading days selling fever returned with a vengeance. On Monday, October 28, over 9 million shares sold; the market shed about 13 percent of its value. The next day a record 16.5 million shares sold, in another spectacular 13 percent drop. All of the gains of the previous year washed away.
From October 28, 1929 through June 1932 the New York Stock Exchange lost over 80 percent of its value. It did not regain pre-crash levels until the 1950s.
As of January 1998, 38 percent of Americans owned stock. In November 1996 Alan Greenspan bemoaned the irrational exuberance that was pushing the stock market to ever-higher records, apparently in an attempt to slow the growth. It did not work. More than a trillion dollars poured into the market in the fourteen months following his announcement. During this period the market experienced the third largest one-day percentage loss of all time, followed the very next day by the third largest one-day percentage gain of all time. Record gains, losses and volumes; seemingly perpetual double-digit growth; talk of a permanent level of prosperity; unheeded warnings of market overvaluation; these seem strangely familiar.
Most frightening of all, the experts promise that it can never happen again. We can never experience another such depression. We have better methods of controlling the markets these days. We have more stringent regulations. We have greater governmental oversight. There is social security. There is welfare. There is unemployment insurance. Blah, blah, blah. . . . What is not extolled from the parapets of government is that we have a national debt of well over $5 trillion, expanding by nearly $10,000 per second and unfunded social liabilities of well over $20 trillion.
The United States is about to hit an economic brick wall at an extremely high rate of speed. The economies of the world have value only with respect to one another. In a declining market there is always a currency to hold onto, isnt there? What will happen when the peoples of the world attempt to withdraw their wealth from the clenched fists of bankrupt nation states? Chaos.
The world no longer has a Gold Standard to abandon in the hopes of generating wealth and rallying optimism. It has been replaced with a morally deficient fractional reserve banking system, from whose printing presses flow an ever-expanding river of fiat money flooding a reservoir of debt ready to overflow its banks."
--- The Year 2000 - Countdown to Calamity (pg 108) (1998) http://www.bigo.net/reswab
-- Rod Swab (email@example.com), April 18, 1998.
Another angle from W.G.Bretz in "Juncture Recognition" as quoted in REMcMaster's "The Reaper".
"The market is so frantic these days that it's difficult to make the data fit any logical pattern. What I worry about here is the overall pattern of the market and of the counry itself. It has becime so spastic, so ill-considered that it doesn't make sense. Only one situation in this century comes close to today's delusionary attitude and that is 1929.
"When you read of surveys which show that today's investors expect a normal return on investment to be 20% peryear for the next 10 years, you know they've all gone mad.
"But it isn't just the public that is mad. If the Fed did recognize that the rising stock market prices actually represent inflation, they would be stomping on the brakes instead of pressing on the accelerator."
Now 60 years after the final bottoming of the trough of the last Depression in 1937/1938, and the beginning of WWII, we are just about on schedule for the conclusion of the current Kondratieff Long Wave Economic Cycle which actually peaked out in 1968/1973, at the height of the Vietnam War. Roughly thirty wiggley years up and then thirty wigglely years down. The last thirty have been a choppy up and down (but mostly down in the real terms of inflation adjusted dollars).
The reason that the PPI and CPI are not showing inflationary pressures is that the stock market is receiving the inflationary excess credit, but neither the Dow, nor the S&P500 are included in the basket of good and services that the government uses to generate its measures of inflation.
Happy New Year 99 or 00 ... I guess.
-- victor Porlier (firstname.lastname@example.org), April 18, 1998.
Great posts! Another trend like in the late 20's- investers are looking at future earnings instead of company valuations. The PE is around 24. This means you would be paying $240,000 for a company that shows a profit of $10,000 per year! The 20's was a time of great technological advancement- Electricity was becoming widely used, refrigeration had been developed, ect.. This was one reason why people felt they were living in a new era. The grain reserves presently in the USA are at modern era lows! One season of crop failure and we would be facing famine!
-- skipper clark (email@example.com), April 18, 1998.
Addendum to my last post. Somehow half of one paragraph got deleted after posting. I'll attempt a reconstruction of the half-axed thought.
Now, 60 years after the final bottom of the the last Depression's trough (1937/1938) which had begun in 1929, we are about on schedule to finish the current Long Wave Economic Cycle, first identified by Nicolai Kondratieff in the 1920s. A choppy roughly 30 years up to its peak in 1968/1973, and a choppy roughly 30 years down to its imminent next trough.
-- Victor Porlier (firstname.lastname@example.org), April 18, 1998.
Food for thought.
-- Bingo1 (email@example.com), August 09, 1999.