Happy Anniversary

Here are two charts to compare. One of the DJ30 from the 1920s-1930s and the other the Nasdaq from the late 90s to present. I numbered critical points of comparison on both. Both times stock market bubbles were followed by banking crisis'. It's a bit like studying tea leaves. We only know if predictions are true after the fact.

I don't think the collapse of tech after 2000 did enough to take speculation out of the market, particularly after 9/11 with interest rates being cut, money was cheap and leverage was easy and largely unregulated. The big question which I can't answer is if the lows of 2002 will hold. For DJ30 that is 7200, for SP500 768 and NASDAQ 1108. Those are intra-day lows and they occurred on 10/10/2002 (today??). The market ended up much higher that day. I think the DJ30 and the SP could challenge those lows but unlikely the NASDAQ will. If that happens, I think it will be true capitulation with huge selling. The explosion in the derivatives market largely started in 2002 and there is some intuitive sense to the stock market getting back to those levels as all the leverage unwinds. I'm hoping the US follows Britain and provides a guarantee for inter-bank lending. If Morgan Stanley goes under this weekend, the few banks remaining will all be too big to fail (TBTF) and the government will end up partially nationalizing them (making equity investments.) All that being said, I don't think we will see a bull market for another 8 years, give or take (I base that on looking at the 30s and the 70s.)

I initially thought, as of a few weeks ago, that the levels we reached today would be the lows and they could still be, however, today being Friday it's unlikely that many people will want to go into the weekend buying.