LINK

From Stocksite: Running Full Tilt into Nuclear Winter

This is a must read for those interested in the Stock Market.

-- Mike Lang (webflier@erols.com), September 08, 1999

Answers

Mike, try again. Your link contains no data.

-- freddie (freddie@thefreeloader.com), September 08, 1999.

The link worked fine for me... a excerpt

_________________________

1929 Deja Vu

The similarities to these periods are scary, but this market is most like 1929. Investors in 1929 also thought they were in a "New Era." The U.S. had experienced a period of unparalleled prosperity, with low interest rates and inflation. While the economic fundamentals of 1929 are almost a one-for-one match to today's, it's the psychology of investors in 1929 that's really frightening. The following is a brief excerpt from the book Wall Street Stock Selector written in 1930 by William D. Gann, a great market technician of his time. In a paragraph titled "1929 Wall Street Panic," Gann describes the mood of the day and the outcome.

"The cause of this panic was due to wild gambling not only by the people in the United States, but by people in the foreign countries. The whole world was gambling in the stocks of the United States. People were buying right and left regardless of price. Fortunes were made on paper in a short period of time. Everybody from the chambermaid to the multi-millionaire was in the stock market. People had ceased to work and were watching the stock ticker. New millionaires were being made in a short time. People had neglected their business because they thought it was easier to make money in the stock market. Never was there a time before in history where a speculative wave was more overdone than this one. Broker's loans continued to mount until they reached over 8 billion dollars. It has been conservatively estimated that the total loans on all stocks outstanding in the United States exceeded 30 billions of dollars. At the top, when prices were reached, the total value of all stocks traded in on the New York Stock Exchange exceeded 100 billion dollars. Bond prices started to decline in 1928 and money rates started to advance, which was the first warning that the bull campaign was nearing its end. Call money rates were as high as 13 per cent in 1928 and went to 20 per cent in 1929. Warnings issued by the Federal Reserve Bank went unheeded. The largest number of new securities were floated in 1929 of any year in the history of the New York Stock Exchange, all of which required large amounts of money to finance. The last stage of this great bull market had been so rapid that a reaction, an orderly decline, or an orderly wave of liquidation was impossible. When everybody had bought to capacity and started to sell, there was no one else who wanted to buy and a collapse was inevitable. The decline was the greatest in history and the public suffered the greatest losses. However, this was a rich man's panic as well as the poor man's and the multi-millionaire suffered along with the lamb. Profits of 5, 10, 25 and 100 million or more were wiped out in the short period of less than 3 months. The big traders were just as unable to get out of stocks as the little fellow, because there was no one to buy the stocks they had to sell."

In today's market we have instant Internet billionaires. We have millions of day traders and on-line traders, some of whom have quit their jobs to speculate in the market. Instead of a stock ticker, these traders watch CNBC all day. Stock market margin debt is nearly $180 billion (a record), up from $30 billion in 1991. Margin loans are only the tip of the leverage iceberg. As in 1929, today's investors buy regardless of price. Bond prices started to decline in the fall of 1998 and have suffered through one of the worst years in history. Warnings issued by the Fed (as well as from many other leading economists - Paul Volker, Milton Friedman, Paul Samuelson) have gone unheeded. Paul Samuelson, the Nobel Prize-winning economist compares today's massive stock market valuations to snow building up on the Alps in advance of an avalanche, according to a recent report in The Wall Street Journal. The Fed has now raised interest rates two times this year and mortgage rates and credit card rates have jumped.

While we know that history never repeats itself exactly, we also know "that those who ignore history are doomed to repeat it." Since seventy years have passed since the crash of 1929, there are few Americans around that have any memory of it. That's too bad, because we're in the process of repeating a previous generation's mistake. History is not repeating exactly, although we might have been better off it it did. There are differences in this mania. Stocks are at least two times more overvalued than in 1929. A far greater percentage of the population is exposed to the stock market than in 1929. We have a negative savings rate, bankruptcies are at record highs and consumer debt is unprecedented.

There is one other difference. We're heading into a millennium change, not just the turn of a decade. In 1929, like today, the pressures were building. But even today, there are great arguments as to what the trigger was for the collapse. We know that the market was exhausted and all the buyers were in before selling began.

Will There Be A Race To Get Out First?

I believe we're well through the stage where all the buyers are in and the short-sellers have been destroyed. While there was no visible trigger in 1929 that started the selling avalanche, in 1999 we know that within the next 119 days, some number of investors are going to pull their funds from the market due to fears of Y2K-related millennium turmoil. Some are already pulling out, though it is probably only a trickle. Right now, most people are still enjoying the last days of summer.

Over the next several weeks, investors will look at their portfolios, and decide whether the rewards of riding this market through to next year are worth the risks. Greed will hold many in, taxes will freeze others from action. Already, institutional investors have been taking steps to reduce their exposure. Risk premiums in the bond market have been rising. Interest rate spreads between short-term treasuries and riskier alternatives have been widening. Corporations have been drowning the bond market with supply due to Y2K fears. The treasurer of DaimlerChrysler, which recently issued $4.5 billion told The Wall Street Journal recently, "My fear is we're ready for Y2K, but will there be redemptions from mutual funds hurting liquidity in the market?"

A Gallup Organization poll completed midyear found that 42% of respondents expect ATM machines to fail, 38% expect checks to bounce, 22% think the whole banking system will shut down and 47% either definitely or probably believe that people will panic and withdraw all of their money from the bank. Anticipating these fears, the Fed is printing $50 billion in additional currency.

An Associated Press poll found that a quarter of the population will take money from their banks and a third plan to stock up on food, water and other supplies. A poll conducted by DeRemer & Associates and Prince & Associates of 1,000 mutual fund shareholders found that 39% were highly concerned about the impact of Y2K computer issues, while 14% said they will sell shares by December. A recent worldwide survey of 14,000 people conducted by the Gartner Group, found that almost two-thirds said that they plan to modify their investments. September and October are historically the worst two months for the stock market in the year. Will investors hold their ground through earnings disappointments?

-- Bob (bob@bob.bob), September 08, 1999.

Thank you so much for the heads up. This was one of the best articles I have read on the subject.

-- Kristi (securxsys@cs.com), September 08, 1999.

READ the entire article! Mike's snip has left out the best part - why the stock market will crash before 1-1-2000. Excellant article and I read many articles.

-- MarketwatcherToo (Long@TimeLurker.com), September 08, 1999.

Ok...tell this old lady what a DRAM means. Great article and makes me happy to know that we got out at a high in July 1998. Taz...knittin' and a rockin' and humming today.

-- Taz (Tassie@aol.com), September 08, 1999.

>> Ok...tell this old lady what a DRAM means. <<

DRAM stands for Dynamic Random Access Memory. Almost every computer uses some form of DRAM as its short-term memory. A lot of other electronic gizmos have DRAM, too. It is a primary commodity in the electronics industry, like soybeans in the agriculture industry.

-- Brian McLaughlin (brianm@ims.com), September 08, 1999.

Priceless!!!

this is the stuff of which other media venues offer almost nothing, yet here it is, [on the net] free for the taking...

Great find! Thanks,

PJ

-- Perry Arnett (pjarnett@pdqnet.net), September 08, 1999.

I agree PJ. It may be a little long for some yet the perspective is remarkable and the explanations offer clarity. I thought it was a pleasure to read.

-- Mike Lang (webflier@erols.com), September 08, 1999.

Re: Bob's Dejavu - where do I access the whole article? Johan

-- johan (reisch@c-zone.net), September 09, 1999.