The Second Great Depression

Great Depression I: Autumn 1929 stock crash, but the bankruptcy of an Austrian bank, Creditanstalt, on May 11, 1931, was the key event for causing sovereign debt and bank defaults.

The time frame is about 20 months from the start of the crisis to the major event that made everyone realize this was a depression. The failure of Creditanstalt was not a trigger event, in that it was a depression and there was going to be a bank failure of some sort, but it marked the turn.

May 2010 is about 20 months from the Autumn 2008 stock market crash. Today is May 6.

Does history repeat? Is this an over reaction by the market? What is making me nervous is that preferred stocks of banks are down huge today, nearly double digits in early afternoon trading. I've assumed bad things were coming all through the rally because I believe we are in a depression and not a recession. I lost a small sum trying to go short at various points. (I should have shorted the euro with reckless abandon though! Hindsight is 20/20.) But I've never been nervous before. Even though I have expected it and believe I'm well prepared, today I am nervous.

Which probably means today is capitulation day and tomorrow will see an awesome rebound. I did actually turn so pessimistic on March 3 that I questioned whether it was the bottom, since I literally could not find a piece of good news. I don't think today is anywhere near the pessimism of March 3 though. There may be a bounce tomorrow no matter what, but rationally I think we've crossed the threshold and the markets are in for some trouble.

Update: It turns out that plunge today was a fat finger trade in Proctor & Gamble (PG). This makes it very likely there's a rally tomorrow, but I wrote the above before the plunge took place. The timestamp is 2:12 and at that time, the S&P 500 was at 1138.96. It closed at 1128.15. I'm not sure if the plunge is good or bad for the market in the near term. Will people think today was just a bad trade and overreaction, or will confidence be shaken such that more losses are coming soon?

No comments:

Post a Comment