"echo bubble after 1932" by Culmus Original at #msg-1534729
Just because the Nasdaq had a comparable percentage decline to the Dow during the period of 1929 to 1933 does not mean that the two periods are similar and that the aftermath will pan out in a similar way (as the Dow Jones Industrial Average indeed quadrupled from 1934 to 1938).
The bubble of the late Twenties was followed by a total collapse of American industry.
The U.S. Index of Manufacturing Production declined by 47% (!!!) from the peak in 1929 to the trough in 1932:
While the US manufacturing industry as measured by "U.S. Net Profits of Manufacturing Corporations" was bleeding red ink for almost three years from 1930Q4 to 1933Q2 ($ millions):
What you had in the aftermath of the burst bubble following 1929 was a catastrophic collapse of the economy, employment, investments, personal income, corporate profits and dividends. The decline of stock prices about matched the declines of corporate investments, profits and dividends in percentage terms. At the same time you had a total disillusionment among investors as JP Morgan for instance exited the asset management business altogether in 1934 after losing 70% of customer assets (which actually was above average).
In stark contrast total US industrial production declined a mere 6.7% peak to trough from September 2000 to December 2001. Employees on nonfarm payrolls declined from 132.6 million in February 2001 - the last peak - to 129.8 million this last August, if that should be the trough. A similar decline comparable to the 1929 burst would have cost about 36 million jobs today!
According to S&P profits for the S&P 500 Index components declined by 39% peak (2000Q2) to trough (2001Q2) and for the current fourth quarter are expected to only be 3% below peak earnings. That decline was exaggerated as companies during the bubble included financial income in regular income (for Intel financial income reached 40% of reported profits in 2000 for instance) while they are now excluding eventual write downs. Excluding financial income also in 2000 the decline was much more muted.
In the "real bubble" we had a total collapse of the economy, corporate earnings and valuations. The quadrupling of the Dow Jones from 1934 to 1938 started from a PE ratio of less than 6 based on depressed earnings while the S&P now trades at a PE ratio of about 20 with much less earnings upside percentage wise than in the Thirties.
Back then stocks were considered just about the most speculative thing there was, nobody wanted to own stocks, while today investor optimism is higher than it was in 1987.
In my humble opinion you are comparing apples to oranges when assuming that we are in for a repeat of the post 1934 bubble burst rebound.
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