Will this coming depression be like 1929?I get a lot of questions about this… probably because some of the media are putting the idea into people’s minds. My opinion on this is — and keep it mind it’s my opinion and not any kind of advice — is no, not at all.I think it’s much more hopeful this time around.I am no financial or economic expert. I studied economics in sixth form and have a MBA, but I don’t think they help much when it comes to cataclysmic changes.
Fortunately, I have people in my corner like Andrew Pancholi, an expert in cycles analysis, (and who has agreed to join me in a new webinar series: The Great Transformational Age of Rebalance) to navigate these critical points. To add this Webinar series to your calendar click here. Stay tuned for more details on this upcoming event.
So with that disclaimer, let’s look at both cases.
The ‘Great Depression,’ as it is called (although there was nothing great about it) happened in 1929 as the result of several factors — several factors that came together to cause an accident.
Think of a road traffic accident. It’s never caused by one thing but several things coming together: The driver of one car worked too long and fell asleep at the wheel… the driver of another car didn’t have the money to replace the worn-out tires… a deer decided to cross the road. The vehicles swerve, a tire bursts, the other driver wakes up. The deer walks away thinking how noisy humans are. All too late. It’s unfortunate. It’s an accident.
Depressions are the same.
1929 was more like the dot.com bust than the current stock market crash.
In 1929, every high street included a shop, rather like a betting store, that allowed anyone from millionaire tycoons, who played with their money for fun, to janitors who handed over their hard-earned dollars in exchange for shares. Everyone was buying stocks and the stock market got inflated.
That is exactly what happened in the dot.com debacle, too.
I got caught up in it myself. I invested $5,000 in an Ameritrade account and in 6 months turned it into $250,000.
I thought I was a genius trader.
Everywhere I went, whether restaurant, beach, or street socials, people couldn’t wait to give me their next stock tip. I should have seen it coming. Everyone thought they were genius because every stock with a dot.com after its name skyrocketed.
We were all suckered in especially by stock trading company TV ads showing people handing their boss resignation letters as they became a rich day trader.
I recall the day of the crash..
I was in Minneapolis airport waiting for my flight to start boarding. A big TV screen started showing the stock market crash. Of all the storylines, my biggest holding, Engage Technologies (an early type of ETF) was the biggest…
And I watched it crash from something like $40 to under a dollar in a little over an hour.
Keep in mind that in those days we had to use public phones to trade. In 1929, they had to use the telegraph.
I tried to sell… but the phone lines were overwhelmed. All I got from my Ameritrade account was a waiting tone. (In 1929, it took days for a trade to execute by which time the value was gone.)
Just like the dot.com bust in 1929, a lot of people traded on what is called margin, which is basically borrowed money. So when the crashes happened, not only were stock values wiped out, but the investor had to settle their margin ‘calls.’
In both events people lost everything, including their homes.
Our stock market crash today is different in many ways. For one thing, it’s not caused by individual investors getting rabid at the thought of a get-rich-quick opportunity.
Today the rabid one is the senior executive of a corporation who used government tax handouts to buy back their own stock. They’ve made short-term fortunes and care not if the stock now crashes — because they have loads of dough made from selfish decisions to buy shareholder stocks rather than invest in growth. They’ll just buy again when the market bottoms.
The result is the same, but the cause is significantly different.
This actually offers us hope because individuals are not ruined. Many have lost value, but if they didn’t sell, they’ll be made whole again probably quite quickly just like in 2008.
I don’t think Covid-19 has anything to do with this crash, but it’s a convenient scapegoat for those who were on watch when the crash happened (and who also gained a lot from the buybacks).
It was not lost on me that Buffet sold millions of shares from his financial holdings and converted them to Kroger shares (I posted about this on FaceBook on Feb 15). This is a classic hedge against recession.
So, Covid-19 might have a small part to play as a trigger for the sensational news headlines that always precede a contrived crash, but more likely it is just coincidence.
However, the stock market crash in 1929 was followed by a drought and famine (which is rarely talked about by historians).
America was largely an agricultural economy and the effects of the drought were devastating. Millions headed for cities in search of work.
In short, it was chaos.
Yes, it’s chaos right now, but it’s more like ‘herd mentality’ than actual problems.
Keep in mind that there was no welfare system or social security in 1929. The President was Herbert Hoover. Search his name, look at the picture and put a strawberry blonde wig on his head. (I’m politically and religion neutral… but an observer of events). He was about as much use as a piece of kitchen roll in a flood. His indecision and fear exacerbated the situation.
The ‘great’ depression actually lasted 10 years until Europe went to war with Hitler’s regime.
In the meantime, Hoover was replaced by Roosevelt.
I don’t understand why Roosevelt isn’t more celebrated in America. From all the histories I’ve read, the man was a genius. He could clearly see a world war as a way out of the mire.
First, he introduced social security and other measures to help certain groups in America. The economy recovered and faltered twice into more recessions. With world war his ‘savior,’ Roosevelt was able to maintain neutrality… while at the same time turn agriculture manufacturing (with no demand) into a war production machine (with massive demand).
And he did it all while fooling the people who were largely against getting involved in a European war. More people in congress were of German decadency than British, so it would have been hard initially to get their approval of joining the fight.
The manufacturers made parts — not whole machines — but if one could connect the dots (which is only possible in hindsight, a part here, a part there)…
My God, it is a tank!
Add a consultancy-style contract to ship goods to the U.K. while being safe from German submarines (because the U.S. was neutral)… and you have the mark of a strategic genius.
Goods in return for the U.K. giving up its dominions to America.
World war II and Roosevelt’s careful timing turned America from ruin into the world’s most dominant power and economy. (He’s someone I would love to have met and learned from.)
I don’t believe we need a war to recover from this depression because time periods are different… but America makes a lot from its export of weapons — and weapons need wars to increase demand.
In the 10 years following 1929, communication was, by today’s standards, painfully slow.
Today it’s instantaneous.
So, what took years to achieve back then takes weeks or maybe months now.
All the independent analysts I study, and who have all predicted this crash, believe we will be in growth again by late 2021, a remarkably short period of time.
Where many see the sky falling, I see more of a reboot.
Covid-19 will pass and will forever incorrectly be blamed for a rather obvious crash.
How those in power manipulate the headlines will determine the result of an election but, rest assured, none of them are a Roosevelt in my opinion.
If you got caught unawares by all this just be patient. All things pass and I believe this one will pass rather quickly.
Do consider the amazing opportunity coming up to start your own venture. There will never be a better time to reinvent yourself.
A version of this blog post has also been published on Medium.com