How Bad Is It?

How bad is the current state of economic affairs?  The news media tells me it is very, very bad.  People are losing jobs, and companies are declaring bankruptcy.  Consumers have stopped spending money, and employers have cut wages.  Homeowners are facing foreclosures in record numbers and housing prices have dropped.  It seems bad, but how bad is it really.

Many comparisons have been made to the time of the Great Depression.  I do see some key differences between now and the Great Depression.

We have significantly increased our standard of living since the 1930’s.  Necessities today include basic cable, a cell phone, a car, internet access, and all our convenient appliances.  In the 1930’s many of these items were not available or were very expensive luxury items.  Today, we take them for granted as must-have items.

 

We have much faster access to news and information.  We don’t need to wait to hear the latest round of bad news.  I also believe the negative information gets more coverage because it gets people’s attention.

We have more economic indicators.  It seems that several times a week, more numbers get released indicating the current state of things.  It seems when things are good, all the indicators confirm it; however, if things are bad, it feels like a continuing avalanche of negativity.

This recession has been one of the worst in our history, however I believe it has not yet reached the levels of the Great Depression.  It is very hard to compare due to the above-mentioned differences. 

Here is my measuring stick:  We will have reached the levels of the Great Depression when more than 50% of 2008 cell phone subscribers have canceled their plans.  That will be tough times.

Does History Repeat Itself?

Does history repeat itself? I believe it does to a certain extent. It seems that we tend to ignore history and the lessons it provides. Experience really is the best teacher. If we can let another’s experience be our teacher, we can avoid many headaches.

In my lifetime, I don’t expect that there will be another mortgage crisis. Why? I believe the banks and other lenders will not be handing out subprime or other risky loans. That lesson is fresh with us, and those who go back to those practices will be thought of as stupid or naïve. The lessons of the Great Depression were very vivid to those who lived it. The interesting thing is that the Great Depression generation is mostly gone. Those who lived through the Great Depression had very sound financial values. The following generations slowly lost that as time went on. Today’s generation will not soon forget the lessons from today’s economy, however, the following generations will, most likely, at some point get themselves into a similar situation.

I have heard it said that the definition of stupidity is keep doing the same things and expecting different results.

Is October Bad Luck?

What is the deal with October? Does the stock market have something against the month of October? The Great Crash of 1929 - October 29, 1929; Black Monday - October 19, 1987; Mini crash - October 13, 1997; Crash due to Asian markets - October 27, 1997; and the current economic crisis - October 2008.

Is it due to elections, market timing, beginning of the 4th quarter, or is it all coincidence? Some brief research shows that of the top 20 largest daily percentage loss days of the stock market, 9 of them are dates in October. That is 45%. The top 3 largest daily percentage loss days are all dates in October.

However, the flip side is that of the top 20 largest daily percentage gain days, 6 are in October. If you look at the gain days more closely, you will discover many of these occur a few days after a crash, when investors believe the market has bottomed out, and are speculating that bargains are available.

All that being said, October and the autumn months seem to be when most of the losses on Wall Street occur. Why that is remains a puzzle to me.