Op-Ed: Blowing the Biggest Bubbles-Minyanville

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Op-Ed: Blowing the Biggest Bubbles

Minyanville Staff Mar 09, 2009 11:40 am


		Comparing the present to history's three greatest busts.

Editor's note: The following op-ed is from Minyan Ambassador Robert.

The S&P 500 has been in a brutal bear market since setting the all-time high in October 2007. Many are calling the credit bubble the biggest bubble of all time. Although we understand that FDR didn’t know what a derivative was, Japan is still 80+% off the highs set 20 years ago, and Nasdaq is close to its post-bubble lows 9 years later.

It's interesting to compare the bust periods of the 3 greatest bubbles in the last 100 years -- the Great Crash of 1929, the 1989 Nikkei, and the 2000 dot-com bubble -- to the current S&P 500 bust.

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Methodology: Day 1 is the date of the closing bubble highs for all 4 markets. All of the market data is indexed to 100 for Day 1.

Key findings:

1. There's a strong statistical correlation between these markets. Nikkei 1989, Nasdaq 2000 and Dow 1929 are 0.86 to 0.89 correlated for the 4-year period after the great top. So far, S&P is creepily close to both Dow 1929 and Nasdaq 2000 trajectories.

2. Intensity of the S&P 2007 drop is very close to Dow 1929 (identical!) and Naz 2000 (4% worse) in the first 355 days from the highs.

3. If we assume the trajectory will continue, we're still roughly 300 to 350 trading days (we're only halfway done) from the ultimate bottom.

4. We could be looking for another 40% to 50% drop from the current levels.

Click to enlarge

5. The rebound will be phenomenal. Dow 1932 went up 250% in a year after setting the bottom. Nikkei 1992 and Nasdaq 2002 went up 43% and 71%, respectively.

Click to enlarge

6. The bust survivors will substantially outperform the market. As an example, below is the dot-com survivors' -- Amazon (AMZN) eBay (EBAY), Cisco Systems (CSCO) and Yahoo (YHOO) -- performance, versus the Nasdaq.

Click to enlarge

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Comments (8)

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Krazy P

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03-09-2009, 1:11 pm
This timing for the trough is consistent with the work of Rogoff and Reinhart; (do a search on Rogoff aftermath to find the analysis - can't seem to post the link here) which calls for the duration of equities peak to Read More

John Privara

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03-09-2009, 3:12 pm
Fasinating. Esp the accounting rules change. So, history does repeat itself. Read More

George Sakoda

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03-09-2009, 3:52 pm
It's impossible to read the time scale on the first chart. Is the data in weeks? Timewise, how far away are we from the ultimate lows? Thanks to whoever answers, George Read More

Thomas Lacour

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03-09-2009, 9:56 pm
Thanks Ambassador, provocative and concise work. Yes the graphs could be clearer, but the text makes plain the timeframe and extent of possibly brutal further downside. Can you likewise relate the SP500 Bear of Sept2000-Oct2002? It s Read More

Thomas Lacour

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03-17-2009, 11:52 pm
Been following that eerie parallel in the current QQQQ and DJI 1937-1938. Mighty close fit. Loved the bit about the headlines. Boy, if history doesn't repeat itself, it sure rhymes. Read More


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