1929 to 2008: Market Oscillations

The stock market seems to be going up and down. This agrees with Ben Bernanke's "Financial Accelerator" model, which indicates that when the market starts to move, it typically overshoots where it should be and then bounces back. It is a little like the spring in the animation on the right.

If we use the "mass on a spring" model, there is a clear formula for the frequency at which the mass goes up and down. The time between up (or down) cycles is proportional to the mass on the spring (The bigger the mass, the slower it moves).

If we think of the "mass" of the market, a good measure would be Market Capitalization. I had a hard time finding this value for 1929, so I decided to use GDP instead. To convert to 2008 dollars, I divided by CPI (consumer price index) to factor out inflation.

Date	GDP ($billion)	CPI	Sqrt(m)	Ratio to 1929
1929	104	17.13	2.46	1.00
2008	14200	207.34	8.28	3.4

What this means is that 3.4 days today is equal to 1 day in 1929 (in terms of market momentum). So here's a plot of the stock market with 1929 scaled by value (using recent market highs) and by time (using here 2.8 days). The similarity is scary.

Still on track for a Depression

I'm not an economist and I don't really know the exact definition of a depression, but looking at my comparison of the current stock market to the 1929-1930s crash (here) it appears we are still on track for a depression. Today, the Dow fell back below the 1930 level. Only time will tell where things are really headed.

Unofficial FDR Poll and Surprising Results

Recently there has been comparison's between Obama and FDR[1]
and I've heard conflicting opinions FDR. Either FDR was nearly perfect and saved us from the Great Depression or his policies extended the Great Depression. I decided to ask the oldest people I know.

1. My Father - although he died 8 years ago, I had a school assignment to ask him about FDR. My dad grew up in a small town in Arizona and remembered huddling around the radio and listening to the fireside chats. FDR apparently was good and communicating to the people.
   
2. My Father-in-law - He had a good opinion of FDR. He grew up near San Francisco and his family struggled. He believes FDR created jobs and helped people out.
   
3. Lady I visit from church - grew up in a larger city. Had positive things to say about FDR.
   
4. My Uncle Jack - created his opinion on the comments from my grandfather (who died in 1960). My grandfather was a small business owner in Los Angeles and didn't like FDR at all. Grandpa even blames FDR for us going to war with the Japanese (That was a new one for me!)[1].
   

My verdict on FDR:

• He helped the people who were struggling at the bottom of the economy.
  
• He punished businessmen who were in a position to help the economy.
  
• He opened the worst Pandora's Box in history by knowingly provoking Pearl Harbor thus turning our non-interventionist country into a powerful war machine. Read Day of Deceit
  

The last item to me dwarf's anything to do with the economy.

1929 to 2008 Stock Market Crash Comparison - Using Google Spreadsheet

This is the same as a previous posting, but instead I'm using Google Spreadsheets to see if it will be easier to update the data.

The Dow Jones Industrial average (^DJI) is scaled from 1929 by 14000/400. Day "zero" corresponds to October 24, 1929 and Oct 7, 2008.

Update: August. 1, 2015:  I learned an important lesson from this post.  I can't and shouldn't try to predict the future.

Update: Feb. 12, 2010: Scale Time Axis for 1929 (see Market Oscillations)


Added Sept. 23, 2010, 100-day moving average and 1987 Crash data.
Update May 3, 2013, New chart type

1929 to 2008 Stock Market Crash Comparison

Click Here for an updated version of this blog

It seems everyone is comparing our current financial crisis to the Great Depression. I thought I would compare this stock market "crash" to the one in 1929. Basically I found the day that stocks (Dow Jones Industrial) dropped to 80% of a recent high (October 24, 1929 and Oct 7, 2008). These are day 0. The bottom axis is relative to these days so that we get a good overlay.

The 100 day view shows that the two track closely. The 3 year view shows that this might take a while. (Click on images to see larger graph).

Updated December 5, 2008. Now using two axes to display actual dollar values.
An alternate viewpoint here