Sent to you by Bo Howell via Google Reader:
via Calculated Risk by CalculatedRisk on 5/6/10
There are two rumors: The first is that there was a trading error (fat finger of a E-mini SP future order), the second is that Euro banks are having a liquidity problem of some sort. Neither is confirmed.
Click on graph for larger image in new window.The first graph shows the S&P 500 since 1990 (this excludes dividends).
The dashed line is the closing price today. The S&P 500 was first at this level in April 1998; over 12 years ago.
The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".
Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.
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I'm not entirely sure what to make of these graphs. I'll discuss them in order.
ReplyDeleteThe first graph shows the S&P 500 since 1990. Notice there was a steady growth period until the late 1990s when the Tech Bubble inflated and then popped. It took the S&P 500 about two years to recover. But six years later the Housing Bubble popped and the index fell even further. But two nearly two years later we are still at the 1998 level. I feel like this graph will start showing a boom-bust cycle with shorter, lower booms and deeper, faster busts.
The second graph shows popular stock indexes during four crises. Notice the different paths. The depression was a double dipper with the second deep being the most severe. The Oil Crisis was a nice v-shaped recession. The Tech Bubble looks more like a steady decline (although the first graph shows that it recovered until the Housing Bubble). The recent crisis'v-shaped recovery was likely the result of government intervention in the private sector).
But now the crisis is starting to hit governments (e.g. Greece, Spain, Portugal, etc.). So who is going to bail them out? I think governments helped weather the intial drop, but we are lining up for a Depression-style double dipper.