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The Stock Market Crash Of 2011 vs 1929?

Thursday, August 11 2011 @ 11:29 AM CDT

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How far does the stock market have to go down before we officially call it a crash? The Dow is now down more than 2,000 points in just the last 14 trading days. So can we now call this "The Stock Market Crash of 2011"? Today the Dow was down 519 points. Yesterday, an announcement by the Federal Reserve indicating that the Fed would keep interest rates near zero until mid-2013 helped the Dow surge more than 400 points, but all of those gains were wiped out today.

It turns out that the Federal Reserve was only able to stabilize the financial markets for a single day.


Fears about the European sovereign debt crisis and the crumbling U.S. economy continue to dominate the marketplace. With each passing day, things are looking more and more like 2008 all over again. So what is going to happen if "The Stock Market Crash of 2011" pushes the U.S. economy into "The Recession of 2012"?



Just like in 2008, bank stocks are being hit the hardest. That was true once again today. Bank of America was down more than 10 percent, Citigroup was down more than 10 percent, Morgan Stanley was down more than 9 percent and JPMorgan Chase was down more than 5 percent.

Bank of America stock is down almost 50 percent so far this year. Overall, the S&P financial sector is down more than 23 percent in 2011 so far.

How soon will it be before we start hearing of the need for more bailouts? After all, the "too big to fail" banks are even bigger now than they were in 2008.

All of this panic is causing the price of gold to reach unprecedented heights. Today, gold was over $1800 at one point. If the current panic continues for an extended period of time, there is no telling how high the price of gold may go.

In the United States, much of the focus has been on the fact that the U.S. government has lost its AAA credit rating, but the truth is that the European sovereign debt crisis is probably the biggest cause of the instability in world financial markets right now.

The European Central Bank has decided to start purchasing Italian and Spanish debt, and there have been rumors that French debt could be hit with a downgrade. Europe is a total financial basket case right now and unless dramatic action is taken things are going to get progressively worse.

Of course the U.S. is also certainly contributing greatly to this crisis. The federal government is on track to have a budget deficit that is over a trillion dollars for the third year in a row. The U.S national debt is a horrific nightmare, but our politicians keep putting off budget cuts.

The debt ceiling deal that was just reached basically does next to nothing to cut the budget before the next election. Unless the "Super Congress" does something dramatic, the only "budget cuts" we will see before the 2012 election will be 25 billion dollars in "savings" from spending increases that will be cancelled.

The modest spending cuts scheduled to go into effect beginning in 2013 will probably never materialize. Whenever the time comes to actually significantly cut the budget, our politicians always want to put it off for another time.

But in the end, debt is always going to have its day. Our politicians can try to kick the can down the road all they want, but eventually a day of reckoning is going to come.

In fact, if the U.S. and Europe had not piled up so much debt, we would not be facing all of the problems we are dealing with now.

Things could have been so much different.

But here we are.

The truth is that this debt crisis is just beginning. There is no magic potion that is going to make all of this debt suddenly disappear.

Most Americans have no idea how much financial pain is coming. We have been living way beyond our means for decades, and now we are going to start paying for it.

Now that long-term U.S. government debt has been downgraded, huge numbers of other securities are also going to be affected. In fact, according to a recent Bloomberg article, S&P has already been very busy slashing the ratings on hordes of municipal bonds....

Standard & Poor’s lowered the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S. That is the thing about financial markets - once the dominoes start to fall, the ripple effects can be felt for a long, long time.

So if this stock market crash gets even worse, will the Federal Reserve respond with even stronger measures?

They have already basically promised to keep interest rates near zero for the next two years. So what else can the Fed do?

Well, many now believe that there is a very good chance that we could see another round of quantitative easing.

Not that more quantitative easing is going to help much of anything. Rather than helping the economy, the last round of quantitative easing just pushed commodity prices through the roof. But the Fed is unlikely to just sit there and do nothing while financial markets struggle.

But it is not just the financial markets that are having a difficult time right now. Bad news is coming in from all over the economy. The possibility that we could soon slip into another major recession is growing by the day.

Unfortunately, our economy is so weak already that a new recession would probably hurt even more than the last recession did.

Mark Zandi, the chief economist at Moody's Analytics, says that if we have another recession it "won't feel like a new recession. It would likely feel like a depression."



But the American people are in no mood for more economic pain. Every recent poll shows that Americans are already fed up.

For example, a brand new Reuters/Ipsos poll found that 73 percent of the American people believe that the country is "on the wrong track".

So let's certainly hope that the current stock market crash does not set off another major global recession. We certainly do not need things to get significantly worse than they are right now.

But whether it hits now or later, the truth is that a whole lot of economic pain is on the way. The U.S. and Europe have been making really, really bad decisions for decades, and we are not going to be able to escape the consequences of those decisions.

The global financial system is one huge mountain of leverage, risk and debt. A collapse is inevitable.

When you build a house of cards on a foundation of sand, you should not be surprised when it comes crashing down.

The next wave of the economic collapse is coming, and those that are wise will get prepared.

http://theeconomiccollapseblog.com/

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Lessons from 1929 stock market crash

by Prieur du Plessis

Although the present financial meltdown is quite different from that of 1929, it serves a useful purpose to revisit the 1929 stock market crash to at least pick up on the investment lessons offered by that situation. This is especially true as financial memory only seems to last a few years before analysts, investors, bankers and regulators again fall victim to greed.

This post is a compilation of eight 1929 videos, which will make for good weekend viewing, especially when reflecting upon the calamitous past two weeks.

We kick off with a five-part movie produced by Middlemarch Films, entitled “1929 Stock Market Crash”.











And here are some more fascinating 1929 clips by Fox MovieTone News, courtesy of Barry Ritholtz (The Big Picture).

Firstly, “The Country is Fundamentally Sound; ‘Don’t Panic, Stocks are Safe!’”. Economist Professor Irving Fischer explains that the stock market crashed due to high expectations – not high stock prices. Too many speculators were playing the stocks with borrowed money, resulting in a run on the banks. 80 years later, the banks are speculating with borrowed money and investors are running away from them.



Secondly, “Did You Ever Lose a Million Bucks?” Take a tip from Margaret Shotwell who dispenses advice after losing 1 million dollars in the Wall Street stock market crash on Black Friday, October 28, 1929. Her only possessions are her piano and chinchilla fur.



Lastly, “Regulation Will Destroy Capitalism”. Richard Whitney, President of the New York Stock Exchange, warns of the risks both to country and to capitalism posed by government regulators in the form of the National Securities Exchange Act. This was almost four full years before he was sent to Sing Sing Prison for embezzlement.



http://www.investmentpostcards.com

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Wall Street Lays An Egg 1929 Stock Market Crash



That was the famous headline in Variety magazine after Black Tuesday in 1929, when the stock market crashed. The term originated in the late 1800s in vaudeville and was extended to non-theatrical failures in the early 1900s.

The paper’s arguably most famous headline — “Wall Street Lays an Egg” — was blazoned across the Oct. 30 issue that year. It was succinctly irreverent and colorful, a tone the 25-year-old paper was just beginning to practice.

The piece is a detailed cross-section of New Yorkers’ reactions to the unfolding fiscal fiasco the Federal Reserve created.

Even more dire, Variety pointed to “unverified but persistent rumors” of suicides, which it said were “suppressed from the papers for reasons of anti-panic policy.”

Below is a 1929 Wall Street Crash Suicide which many publications don’t show.



http://www.worststockmarketcrashes.com

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The Coming 2011 Stock Market Crash



Research says the S&P 500 will make a summer of 2011 run at the 2007 high of 1,565 but hit a “Mid-Year Peak” and then the “Stock Market Will Crash in 2011” and the midyear peak will probably mark the end of the cyclical bull market that began in March 2009 and the start of a new cyclical bear market.

The prediction of a bear market will soon be a painful reality as the inflated S&P 500 will be worth just 910 — get out before it tops over 1,500 on the charts as there is not much reason for it to climb higher with Bernanke’s low interest rate policy which is rapidly vaporizing and when it does — interest rates will rise and the United States stock market will crash.

With the 2012 elections right around the corner, there is one scenario the politicians don’t want to contend with — there is a high probability that a new cyclical bear market will begin this summer. Inflation jitters are spreading through the emerging markets, prompting China’s central bank to raise interest rates and a drought threatening the United States wheat crop will put further pressure on global food prices.

Grantham sees inflation and rising interest rates killing the lies, popping the bubble and ending the rally: “As a simple rule, the market will tend to rise as long as short rates are kept low. This seems likely to be the case for eight more months and, therefore, we have to be prepared for the market to rise and to have a risky bias.”

With $107 billion at stake Grantham better be concerned. He predicted the 2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong market and continued out-performance of everything risky, but be aware that you are living on borrowed time as a bull.”

Yes, the bubble will pop this year says Grantham: “If the S&P rises to 1,500, it would officially be the latest in the series of true bubbles. All of the famous bubbles broke, but only after short rates had started to rise.”

So keep a close watch on those two tipping points in your planning, interest rates breaking to the upside and the S&P closing near 1,500. When inflation pushes interest rates up they’ll choke off this bull market. If you’re active, better stop chasing higher returns, especially emerging markets.

Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel, Grantham says that GMO’s research warns that “the market is worth about 910 on the S&P 500, substantially less than current levels” just above 1,300 today.

The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year is more of an art than a science, get the heck out of Wall Street’s stock market soon — maybe as early as July 4th but by October 1st you should probably be thinking much more conservatively because a stock market crash will happen in 2011.

http://www.worststockmarketcrashes.com

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Major Stock Market Crash Coming for Stocks by September 2011



The first quarter comes to a close today with major averages at or near multi-year highs. Expect “substantial” further gains for stocks before a “major top” occurs in late summer, says noted forecaster Harry Dent, founder of HS Dent and The Dent Method.

The good news, for those long, is Dent predicts the Dow will trade as high as 13,200 by mid-summer and the S&P 500 as high as 1430, or more-than 7% above current levels. The bad news is then we could see another “Major Crash“, Dent says, forecasting the Dow could trade as low as 3300 in a worst-case scenario. “Bubbles go back to where they started or a little lower,” he says. “The stock market bubble started at (Dow) 3800 in late 1994.”

While Dent predicts the Dow’s crash will play out over several years, he sees clear and present danger in gold, silver, oil and other commodities. “All investors should lighten up on or sell oil, silver, and gold as the U.S. dollar looks like it has bottomed and should rise ahead,” he writes in the March issue of HS Dent Forecast.

In the accompanying video, Dent further explains his thinking for why commodities will stumble ahead of stocks, which is the opposite of what happened in 2007-08. In sum, he believes efforts by global central bankers to fight inflation — with the notable exception of the Fed — will hurt growth in emerging markets as well as demand for many commodities.

As for the Fed, they are “checkmated,” Dent says, suggesting the Ben Bernanke & Co. are damned if they do QE3 — because the bond market will freak out — and damned if they don’t — because the economy and financial markets are so dependent on easy money.

Stay tuned for additional segments to hear Dent’s views on the economy, housing and the deflationary pressures detailed in his latest book The Great Depression Ahead, a bookend to his 1992 best-seller The Great Boom Ahead.

http://www.worststockmarketcrashes.com

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