Crash Of 1929: Can It Happen Again?

ZEROHEDGE – April 28, 2018:  In the 4th of February, we published a blog entry detailing the similarities of the current stock market environment with that before the stock market crash in 1987. On February 5th, the Dow Jones Industrial Average (DJIA) experienced the worst daily point decline of its history. Since then, the stock market has recovered, but are we out of the woods?

We also warned that the situation in the global economy actually resembles more of the time before the Great Depression than that before of the Black Monday in 1987. Worryingly, the same holds for the US equity markets. In fact, almost all of the developments that led to the Great Crash of 1929 are already visible in the US. We may thus be heading towards the worst asset market crash in 90 years.

Prequisites: The ‘Roaring Twenties’

The 1929 crash marked the end of the ‘Roaring Twenties’. The era got its name from consumer and stock market booms driven by the automobile and building sectors. The gold standard and the neutralization of all gold purchases from abroad by the newly created central bank, Federal Reserve or Fed, controlled the consumer price inflation. Due to low inflation, Fed had only limited incentives to intervene on the speculation by increasing the short-term interest rates. The easy credit era was let to persist fueling the boom in the consumer durables, commercial property market, automobile industry and the stock markets.

The tide switched in January 1928. The Fed decided that the boom had gone far enough and started to raise its discount rate and sell its holdings of government securities in effort to stem the speculation. But, rising money market rates made the brokers’ loans viable options for the bank loans because the former were mostly funded by the large balance sheets of corporations. The call loan rates were also clearly higher than the Fed discount rate, which meant that banks were able to borrow cheaply from the Fed and earn a nice margin on loans to investors. The higher interest rates set by Fed thus increased both the bank and non-bank funds available for stock market speculation. Contrary to the aim of the Fed, the financial conditions eased further and the speculation increased. The twenties kept on roaring.

The Great Crash

In 4 December 1928, President Coolidge had given a reassuring State of the Union speech and 1929 started with positive expectations. The stock market kept rising and the consumer boom continued. It was a common belief that earnings and dividends are growing because of the systematic industrial application of the science together with the development of modern management technologies and business mergers. Still, the first half of 1929 was marked with increasing volatility.

By the summer a dubious mood started to creep. The dividend growth was solid but the economy started to look mature. The first hints about the approaching recession arrived in July 1929 as the index of the industrial production of the Fed diminished. Mixed news and rising interest rates in the US and abroad warned of a looming recession. In September, the stock market started to drift downwards. The fear of a recession started to set in.

On Thursday October 24, after a turbulent week, the prices hovered for all while at the start, but then fell rapidly and the stock ticker started to lag behind. The prices kept falling and the ticker fell further behind. The pace of the sell orders grew at an increasing rate and by eleven o’clock a ferocious selling had gripped the market. A few selected quotations given by the bond ticker showed that the that the current values were far below the now seriously lagging tape. Margin calls started to roll in and many investors were forced to liquidate their stock holdings. The increasing uncertainty made the investors even more scared and by eleven-thirty there was a sheer panic. The frenzy of selling could even be heard outside the New York Stock Exchange, where crowds gathered. …

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Growing Concern: Foreign Investors Lose Some Hunger for U.S. Debt

(In the “enhanced” Silent Revolution Of Truth Compilation Edition, the free PDF book: Download and read about the possibility of the United States economy collapsing because of massive debt after 2020 and how space exploration could be hampered, page 1479 and page 330. And also read about what the Russian economist Dr. Tatyana Koryagina said regarding the pending collapse of the US economy, page 674. Note: Use the page number display located at top right to find the correct page. UPDATED, PDF Format – Links: Book Summary | and Download Book)

WSJ – April 30, 2018: Foreign investors’ appetite this year for U.S. debt hasn’t grown at the same pace as the government’s borrowing needs, which some analysts worry could push bond yields higher and eventually threaten to slow economic growth.

(BattleForWorld: It’s interesting that this is happening after North Korea and South Korea started to talk peace and about working together. Read the posting: The Reason Behind The United States Mischief With North Korea – America-China Financial Wars about how the United States was panicking the stock market by threatening war with North Korea to force-sell US Treasury bonds to investors to help finance the US budget. And the motive for wanting false-peace in North Korea is for the US building corporations to go in and take advantage and to try and pull North Korea away from China. Like what is now being done with Iraq, Libya, etc. reducing Russian participation, and all this is in the interest of Israel because they want to dominate the Middle East region with Arab vassal states.) 

Investors in a broad category known as “indirect bidders,” which includes both mutual funds and foreign investors, have been winning the smallest percentage of the bonds they’ve bid for since 2011, according to bidding data for recent Treasury bond auctions. The average percentage of the auctions won by this group fell for the first time since 2012, a decline some analysts attribute to both lower demand from investors outside the U.S. and their recent tendency to post less-aggressive bids.

The behavior of these bidders is crucial for the ability of the U.S. to fund itself, at a time when the budget deficit is forecast to surpass $1 trillion by 2020 and remain above that level for the foreseeable future. Foreign investors currently hold about 43% of U.S. government debt, the lowest since November 2016, a proportion that has steadily declined from its peak of 55% during the 2008 financial crisis.

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US could trigger next global financial crisis, professor warns

FOXBUSINESS – April 28, 2018: Peter Morici, the former U.S. International Trade Commission chief, explains why the U.S. could trigger the next financial crisis.

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The US dollar is warning a global slowdown in growth is around the corner

YAHOOFINANCE – April 28, 2018: Yahoo Finance’s Jared Blikre joins Seana Smith from the floor of the New York Stock Exchange to discuss the latest market moves.

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