If there is one thing that this current pandemic has reinforced in me it is that the default setting for the majority of people is moron, from idiots on social media telling us that they predicted a crash five years ago, to conspiracy theorists saying this is just an attempt to short the market and then buy at the bottom to idiot tourists sitting cheek by jowl at Bondi. One of my favourite bits of idiocy is the attempt to conflate what is happening now with 1929 ala the chart below.
The problem with these sorts of charts is the arbitrary nature of both the start date and the scale in an attempt to get prices to line up to prove a point. I decided to have a look at this comparison but to do it on the basis of returns. In the chart below I began the charts at a fixed point approximately five years before the crash – the 1929 crash data I continued for five years after the crash to give us a sense of what happened.
All of s sudden they don’t look like twins anymore and the simple reason this is that they were never twins in the first place. The run into the 1929 crash was a much more buoyant time than the five years preceding the current crisis. Whilst both markets came off their peaks the environment surrounding that peak was vastly different. The 1929 peak was characterised by irrational exuberance whereas it seemed that those days were a little behind us in 2020.
Any speculation as to where the market will go from here comes straight from the pulled it out of my arse guess file. Nobody knows what will happen from here.
To add a little more context I took a series of well known US crashes from history and did the same thing – I plotted the five years leading up to and the five years after the crash,
What is clear from each of these is that crashes are idiosyncratic as such they are reflective of a variety of very chaotic factors such as mass psychology, mass communication, government intervention technology and probably a dozen others that I am not smart enough to think of. Each crash occurred in its own socioeconomic bubble that was unique to that time only – any similarity is superficial and fleeting. However, terms of simple recovery, the best crash that has occurred was 1987 – powerful bull market (not as good as 1929) and a very good recovery. Who said the 1980s were little more than big hair, shoulder pads and cool films…..