Post by unlawflcombatnt on May 23, 2007 2:32:20 GMT -6
Below is an excerpt from an interesting article by Bill Fleckenstein comparing the current economic and market conditions with those of 1929. The title of the article is Ignoring the lesson of 1929
"The similarities of the lead-up to the great market crash to today's economic environment are obvious. Don't say you weren't warned....
The economic and financial landscape of 2007 bears striking similarities to 1929. Back then, there were large, unregulated pool operators and other insiders constantly muscling the tape in whatever direction they chose. The public, too, was involved, thinking the country was experiencing a new era. Meanwhile, business began deteriorating in the spring of 1929, though the partying in stocks lasted until the fall.
'Only Yesterday'
To give you a flavor of those times, I'd like to quote from Frederick Lewis Allen's "Only Yesterday," which is one of my favorite books about 1929: "Mergers of industrial corporations and of banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expenses and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. (My emphasis.) And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected -- until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue rights not without a canny eye to their own speculative fortunes."
Obviously, I don't need to point out how similar that is to the practices we are seeing today....
Today, too, there are pool operators, in the form of leveraged-buyout (LBO) and hedge funds, both of which borrow money to invest. And, just like their predecessors, who ignored macroeconomic and corporate deterioration, they are partying as never before. In reading the following passage from Allen's 1931 book, you have to remind yourself that it's a portrait not of 2007 but 1929:
"One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion."
I think that for this current cycle, "promoter" should be changed to "hedge fund."
Turning to the economy, Allen wrote: "Though the shelves of manufacturing companies and jobbers and retailers were not overloaded, the shelves of the ultimate consumer and the shelves of the distributors of securities were groaning. Trouble was brewing -- not the same sort of trouble which had visited the country in 1921, but trouble nonetheless. Still, however, the cloud in the summer sky looked no bigger than a man's hand."
That's where we are now. The economy continues to deteriorate under the surface...."
The full article can be found at
articles.moneycentral.msn.com/Investing/ContrarianChronicles/IgnoringTheLessonsOf1929.aspx
"The similarities of the lead-up to the great market crash to today's economic environment are obvious. Don't say you weren't warned....
The economic and financial landscape of 2007 bears striking similarities to 1929. Back then, there were large, unregulated pool operators and other insiders constantly muscling the tape in whatever direction they chose. The public, too, was involved, thinking the country was experiencing a new era. Meanwhile, business began deteriorating in the spring of 1929, though the partying in stocks lasted until the fall.
'Only Yesterday'
To give you a flavor of those times, I'd like to quote from Frederick Lewis Allen's "Only Yesterday," which is one of my favorite books about 1929: "Mergers of industrial corporations and of banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expenses and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. (My emphasis.) And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected -- until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue rights not without a canny eye to their own speculative fortunes."
Obviously, I don't need to point out how similar that is to the practices we are seeing today....
Today, too, there are pool operators, in the form of leveraged-buyout (LBO) and hedge funds, both of which borrow money to invest. And, just like their predecessors, who ignored macroeconomic and corporate deterioration, they are partying as never before. In reading the following passage from Allen's 1931 book, you have to remind yourself that it's a portrait not of 2007 but 1929:
"One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion."
I think that for this current cycle, "promoter" should be changed to "hedge fund."
Turning to the economy, Allen wrote: "Though the shelves of manufacturing companies and jobbers and retailers were not overloaded, the shelves of the ultimate consumer and the shelves of the distributors of securities were groaning. Trouble was brewing -- not the same sort of trouble which had visited the country in 1921, but trouble nonetheless. Still, however, the cloud in the summer sky looked no bigger than a man's hand."
That's where we are now. The economy continues to deteriorate under the surface...."
The full article can be found at
articles.moneycentral.msn.com/Investing/ContrarianChronicles/IgnoringTheLessonsOf1929.aspx