Tuesday, August 11, 2009

The Fork in the Road

Click on the image above for the full size. It's a fascinating chart comparison of the four worst market collapses of the last 85 years from Doug Short at www.dshort.com.

It compares the 1929 Great Depression, the 1973/74 crash, the dot.com crash of 2000-02 and the current crash of 2007-09.

This particular chart has a riveting twist. Rather than overlay the four collapses (as this chart does), it shifts the point of alignment from the pre-bear highs to the bear bottom in the Oil Crisis, the Tech Crash bears, the first major low in the 1929 Dow, and the March 9th closing low for our current Financial Crisis.

As the chart illustrates, the lows in 1974 and 2002 marked the beginnings of sustained recoveries.

The low in 1929 didn't mark the start of a sustained recovery; the market failed again 11 months later.

As for our current market, since the March 9th low, the S&P recovery has outperformed the 1974 and 2002 rebounds over the equivalent period, and it has only just now fractionally surpassed the initial recovery from the 1929 Dow low.

A great many have stressed that this collapse is unlike anything since the Great Depression and, in fact, is a financial earthquake on par with the 1929 calamity.

So we have come to the fork in the road.

Will the recovery prove resilient?

Or are we on the cusp of a great reckoning as in 1929 with the market poised to plunge significantly again?

Either way, this excellent chart brings the precipice into excellent focus.


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