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Similarity in Stock Market Charts for 1929, 2008, 2016 May Show This is the Epocalypse

Is the US stock market a caged bear? [By Philip Timms [Public domain], via Wikimedia Commons]

Compare the Great Depression to the Great Recession, and you’ll see a similar pattern in how the Dow Jones Industrial Average graphs out. That pattern appears to be repeating now. The nation’s most notorious stock market crash in 1929 did not occur as a single fall off a cliff, but started with high points that rounded downward as the market bounced off a lowering ceiling; then it experienced a sharp plunge for about a month, then rallied, and then it experienced the huge crash we’ve heard about all our lives. After that, it experienced many more rallies and crashes before it found its absolute bottom.

What people forget is that each of the cliffs was made distinct by brief rallies and sometimes by extended rallies in between. The Great Depression was never a smooth path to the bottom.

 

Graph of the stock market crash of 1929 – The Great Depression

 

1929 Stock Market Crash Daily Chart

 

Here’s a graph of the dailies leading up to the Great Crash of October 1929 — the first big drop of many that constituted the Great Depression. Notice that the stock market in 1929 rounded off at the top, took an initial small plunge that lasted about a month, recovered back to the downward curved trajectory of its highest points, then rounded down more sharply and finally fell off the great cliff that became known as “Black Tuesday” or the “Crash of 1929.” Then it spiked way up over the course of a week, only to fall deeper into the abyss over the next half month. And that was just its first crash on the long road to despair.

The crash I am expecting for “the Epocalypse” looks like that kind of bouncy fall into the abyss. Compared to the total abyss I think we are falling into, the bottom of January’s first plunge looks for scale like that first plunge the stock market took in 1929 before it rallied only to round downward more steeply and then go over the cliff. (The current rise in late February and into March is only a little higher than the first rally in 1929 as a percentage of the market.)

To put that in a little more perspective, here is a slightly longer period that includes the crash of 1929, but gives more context:

 

Chart of the 1929 stock market crash of the Dow Jones Industrial Average

Immediately before the recessionary area shaded in mauve that surrounds the 1929 crash of the stock market, you see that the market fell off and then recovered. The big fall began playing out right after that first rally. The market started going down quickly (in the mauve zone) and finally crashed off a cliff near the end of October. That first little dip and uptick right before the mauve zone is where I think we are now.

The fall from the highest point in 1929 is January of this year. The little rally is February and March (a little bigger and longer than the rally of ’29, but not much bigger as a percentage of the total market today). That gives you a sense of the scale of things that I believe are still to come. By the time the crash of ’29 ended (end of the mauve zone), the market had only lost about 50% of its value. It still had a lot further to work its way down in 1931 and 32 (see graphs that follow).

Graphed even longer term and expressed as stock prices per share, the crash of 1929 looked like this:

 

Graph of the stock market crash of 1929

A graph of the stock market crash of 1929 over the longer term.

 

You can see that, as I’ve been saying about the Epocalypse I envision, these kinds of major crashes play out over a fairly long timeframe. The damage doesn’t all happen in a day or month or even a year. Though we speak of “Black Tuesday” or the “Crash of ’29,” the real damage only began in 1929, and the US stock market didn’t reach the belly of the abyss until 1932, by which time it erased all the gains of the roaring twenties.

In other words, the REALLY BIG crashes, happen like this when you string the rises and falls together:

 

Graph of the series of stock market crashes from 1929 to 1932.

Graph of the series of stock market crashes from 1929 to 1932.

 

The Great Depression looks more like a run of steep rapids, and its biggest drop of all (on a percentage basis) did not happen until 1932! (The importance of looking on a percentage basis is that a 100-point drop in the market means you lose half of your money if the market was only at a total of 200 points; but when the market is at 20,000 points, a 100-point drop is only a loss of half of a percent of your money. So, the percentage of the market lost in each drop can be more important than the actual number of points lost.)

When I talk about “the Epocalypse,” I’m talking about that full run of waterfalls and rapids all the way to whatever the final bottom is, not the first crash. As you can see, after each plunge, a rally broke out. The market didn’t fall, go flat and then fall again. Every time it crashed, it bounced way back up and then fell again. (Two steps down, one step up; two steps down, one step up.)

I see this January’s nose-dive as that first almost-invisible dip you see at the top of the Great Depression’s massive run of waterfalls. The market rounded downward in late November and December, and took its first drop into the Epocalypse in January. It made people feel woozy for its small size because it is part of something much bigger, which they sense but don’t grasp. February and March brought the first rally. Many feel the bear has been caged by this rally. I don’t think so. Not by a long shot.

When you look at the Great Depression, you can see how something like the Epocalypse I have been describing cannot be assessed by the first drop over the edge. It is a far greater beast that is the sum of many drops, but the first one made us dizzy enough to get some major attention. That ought to tell you how big the whole monster is.

Now let’s look at the most recent global economic collapse to see how the Great Recession, which we all easily remember, compared to the Great Depression.

 

Graph of the stock market crash of 2008-2009 – The Great Recession

 

Chart of the 2008-2009 stock market crash.

Chart of crash of the Dow Jones Industrial Average in 2008 and 2009.

 

In this case, you can see the market rounded off twice before it fell over the cliff, and the rounded top had a lot more duration than in 1929. Otherwise, this graph doesn’t look much different than the purple graph above of the initial years of the Great Depression, other than the double rounded top. After finally falling off the cliff in October 2008, the stock market rallied sharply, recovering about half of its fall over the cliff; but, from there, it bounced its way on down the rapids. The total collapse actually took over a year to fully play out.

 

Graph of the stock market crash of 2015-2016 … so far

 

Graph 2015-2016 stock market crash

 

Keep in mind, we are only looking at the very top of the market in this graph (in that the graph starts at the 15,000 level, not at zero.) The drop in January was about 10% of the total height of the market (if you were to extend the graph down to see the full height of the market), which correlates to the tiniest (barely visible) blip in the percentage graph above of the Great Depression because the scale on that graph is logarithmic in order to show the market’s full height and to show each drop as a percentage of total market value at the time of the drop.)

Right after the big October Surprise of 2014, which I also predicted, the bull market began to die a slow death. It rounded over the hill and finally fell off a cliff in August of 2015. (Some people still talk of “the bull market” today as if it exists, but they obviously need new prescriptions for their reading glasses because they cannot see a simple graph that shows the market has been falling for months and months. There has not been anything remotely resembling a true bull market for well over a year. Talk of a bull market, as if it still exists, is lower than ludicrous.)

The Dow rounded off to its highest point in June of 2015. From there, its high points establish a consistent downward trend for the market’s absolute ceiling. The Dow fell off a cliff a second time in January, 2016, but it has now recovered to a high point that matches up with the downward trend of the market’s ceiling. (So, in my view, we are still in a declining or bearish market (as measured by the Dow), even today, as we have not broken out of that trend.) The question that remains is whether the US stock market will break through that declining trend and become a new bull market as some are saying.

The graph of today’s market doesn’t look exactly like the graphs of the 1929 stock market crash or the 2008-2009 crash. The duration of a rounded top is longer than in ’29, and the first bounce up after the first cliff is a little higher than either 1929 or 2008, as is the bounce after the second cliff. I’d point out, however, that we have never experienced a market crash in such an artificial environment as the present; so it wouldn’t make sense to demand an exact match.

While the Fed has started to reverse its course on market stimulus, we need to remember that that we are still in a period of some of the most enormous stimulus we have seen the Federal Reserve deliver in its history. While quantitative easing has stopped, we continue to hover near zero interest, which is more intense stimulus than the Fed typically applies even in a bad recession. The Fed also continues to maintain the huge money supply it created under quantitative easing. (While it has stopped Q.E., it hasn’t reversed all money it created.) We are crashing this time while already being given a stimulant high! That is a first in the world of economics. The mere thought of that should scare you.

Naturally, things are going to look a little different with so much stimulant already coursing through our veins and so much money still floating around; but the rounded tops, the downward trends, the sharp falls followed by sharp rallies, still make a pretty close match to our two previous biggest crashes. What I see in the overall trend of the current market is a stock market that REALLY wants to crash (if you follow the highest points it has been able to reach), given the amount of stimulus that it is still mainlining.

The point I want to make with the graphs, however, is not that one pattern proves another will follow but that big crashes are not usually shaped like sharp peaks. They do not graph out as a long rise with an immediate drop over the cliff. Things do round off first. (So, those who are saying, “Ah, you’ve missed your call on the Epocalyspse” are premature in their own call.) The other point I want to make is that the first drop off the cliff (even when it is as infamous as 1929’s Black Tuesday is … 1) only one of many, 2) not usually the worst of the many falls, and 3) always broken up by bear-market rallies.

I’m not big on predicting the market with graphs, but I want to illustrate that the market’s recent behavior and present position remain in line with the way one would expect a major crash to begin. If you look at the graph of the infamous crash of ’29, you will see that, after that cataclysmic plunge, the stock market bounced right back up to the declining trend line of its previous high peaks. (Just like where we are now in 2016.) My point is that the current market hasn’t caged the bear yet. One could say, “The bear is in the cage, but the door ain’t shut.” Today (Tuesday, March 22nd) we see the Dow ended its seven-session rally and fell again exactly as it hit that declining trend line for its ceiling. Yesterday, it slipped to stall speed. Today it fell.

That could, of course, be a fluke due to today’s terrorist bombing in Brussels, but my point all along has been that there is so much bad news in the hopper due to the war-ravaged Middle East, conflict with Russia, oil prices, China’s crash, Europe’s recession, Canada’s recession and massive debt time bombs everywhere that expected bad events and true black swans (deadly events that swoop in out of nowhere) are abundant in opportunity. More so than at any time I remember in my 56 years of living.

So, this question about the latest rally remains in the balance: Will we cage the bear by continuing to march upward, breaking the long downtrend of the stock market’s ceiling, or will the market fail to close the door as it has several times when reaching this trend line and let the bear fully back out again? Is yesterday’s rapid deceleration and today’s reversal in the Dow a fluke or another bounce off the top of an ever-lowing ceiling?

This rally is also about 700 points short from matching the last high point from which the Dow started tumbling in November. So, I wouldn’t call it a bull market, even if it cages the bear until it, in the very least, recovers all the ground it lost since its most recent major rally, which would require that it break above 18,000. And from there, it’s got another 400 points to climb before it breaks past its all-time high, which is when you know the bull is back in charge.

That’s why I said in my last article that we are at a critical point to see if the market rally may become a new bull market that keeps marching upward or if it has hit its ceiling again and will now collapse back into the abyss. You know there is no question in my mind about where this is going. I only point out that the jury is not in yet.

 

How the biggest stock-market crash in history happened:

  • QEternity

    For the first time in a loooong time I get to play the short side.

  • malimut@msn.com

    It is my belief that the destruction of the economy is by design………

    • You could be right. It’s getting harder and harder to defend the argument that our leaders (corporate and government) are just that stupid. However, I think the general populace proves pretty well that people really can be that stupid in mass, and I’ve come to realize that most CEOs aren’t any smarter than the rest of us. Numerous economists and market analysts prove every day that you really can be dumb enough to believe the president’s recovery plan, which is nothing more than the Fed’s recovery plan, is actually working.

      While I can believe there could be a cabal of bankers that has a plan they’re pulling over on the masses, I can’t swallow the idea that nearly ever economist and stock analyst and reporter out there is part of the conspiracy. So, you still have to come down to the stupidity of millions (and if not of the millions, why not of those at the top, too?) In other words, if the mainstream press is in on the conspiracy, so are the economists and the market analysts that they quote all the time. That means thousands and thousands of people are doing a near-perfect job of keeping the big secret from the masses. Secrets aren’t that easy to keep.

      So, I’m still more inclined to go with the idea that its nothing but group think, denial, ideology and greed that clouds people’s brains and makes them ready to suck all this swill up, whether they are a small fry at the bottom of a big potato at the top. The same combination of foolishness that obviously blinds the masses could be just as rampant among our leaders so that stupidity that governs based on narrow thinking.

      Nevertheless, you could well be right. Either perspective is hard to swallow — extreme stupidity and blindness that runs all the way up to the top, or a small oligarchy of conspirators with an earth-destroying secret that is advocated throughout the press and kept all the way to the bottom. I guess it is a matter of which you find hardest to believe.

      –David

      • Ranger

        You said “While I can believe there could be a cabal of bankers that has a plan
        they’re pulling over on the masses, I can’t swallow the idea that nearly
        ever economist and stock analyst and reporter out there is part of the
        conspiracy.”

        Evidently, you are still asleep and haven’t waken up all the way.

        If you are an economist, you more than likely work for a University, Government, Financial Institution, or Media Outlet. In those cases, you are ordered to tow the line, and report as you are ordered. You keep your personal findings and opinions to yourself. If you refuse, you will be fired immediately. So, thus there are an enormous amount of economists who say what they are ordered to say and back what they are told is the narrative.

        Keep in mind that centuries ago, people just like us argued that the earth was flat!

  • This is looking more and more like a repeat – except worse, with technology and nuclear weapons. Ouch.

    So yeah, not an exact repeat of the Great Depression. It will dramatically WORSE.

    Beat the rush. Panic early.

    John Little
    omegashock dot com

    • Hi John. Welcome to the blog. See some of my comments to Shushumiga below.

      We are about to see attempts at economic wizardry that go even beyond the bizarro world of negative interest rates. And ALL will make things worse, not better, because NONE of those things deals with or even acknowledges the true core problems — corrupt bankers, Reaganomics giving excessive tax breaks to the rich while eliminating the Middle Class (still), immigrants causing declines in wages at the lower end because they’ll gladly work cheaper and without benefit (as a true peasant class), but most of all astronomical debt everywhere you look, suffocating the life out of the economy. All OBVIOUS stuff that no one wants to see because it doesn’t fit the world they prefer to believe in.

      Add to that the political gridlock between Democrats and Republicans, who both serve Wall Street, allowing big banks to become twice too big to fail, bailing out the rich but not the poor, and not prosecuting the corrupt because of corporate laws that give those at the top far too much protection. Add to it that neither Dems and Repubs have a single visionary idea in their smug little heads, and neither is capable any longer of working with the other side for the good of the country.

  • shushumiga

    A good example how a clueless perma bear is “reading” the charts – personal perception and bias. This has nothing to do with trading more with doom and gloom generating clicks. The market does not care about your emotions.
    There is nothing similar between 1929/2000/2008 and now. This is a big correction to purge bullishness and greed, nothing more.
    Please spare me the same bearish bullshit which I listen every time for years and listen carefully – the next cyclical bear which will cut the markets in a half and finish the secular bear market is a few years away. Major top in 2019-2020 after another ATH.

    • jakartaman

      Wow- you must be a time traveler – went into the future to see this in 2019/20
      Thanks for the info!

      • shushumiga

        No, just studying the markets. Bear markets and deep corrections in a bull market have clear and distinct behavior. This is not a bear market, there is no one single similarity between 1929 and now. Just a big correction and another 6-12 months lower for the end of the 9 year cycle , take another 2-3 years for the next one higher and there you have it.
        I just want to spare you the disappointment. There will be another leg lower all perma bears will cry the end of the world again just to be torn apart again.

        • Except that a Permabear repeats the same bad news time and again, year after year, like the proverbial broken clock that is still right twice a day.

          That wouldn’t be me. I stopped writing this blog for a year and half because I was certain nothing bad was going to happen for about two years. So, I gave it a rest, and nothing bad happened. I jumped back in half a year before the bull market died because I could see the bull was going to die in half a year, so I wanted to start sounding the alarm.

          The market has yet to disappoint my beliefs … apparently even this time, though it looked like it was coming close. It hit the absolute ceiling, just as I said in this article I though it would, and now it’s going back down. If it broke through that ceiling significantly, I was prepared to say I was wrong; but the ceiling I talked about here seems to be holding as solid as ever.

          I didn’t expect it to go all the way back up to its ever-declining ceiling, but it did, though nor further. The sure sign of a major bear market is that every single rally fails. We’ve seen the ceiling move to a lower point, as I would expect in a crashing market, for ten months now. And that constant decline has happened in spite of the highest level of stimulus the Fed has ever applied outside of QE. That makes this a major bear market.

          Ultimately, I think charts predict nothing. They tell you what is happening, and what is happening is a rounded top, which means an ever lower ceiling on the downhill side of the curve where we are. After the market bangs its head off the lowering ceiling enough times, something will happen (doesn’t matter what) that triggers a panic, and the dying market will crash. If it crashes like all other major crashes, it will rebound, crash again, rebound, crash again, but keep driving itself into the grave.

          In half a year, travel back in time to this page and tell me when you actually have some facts on your side (IF you do, as right now there is nothing to support your argument) that I was full of crap. If I was, I’ll accept the criticism. The proof is in the pudding, so we’ll know if you know what you’re talking about when you predict what is going to happen and we see that you were right.

          –David

          • shushumiga

            Bear markets begins with impulse lower, steady decline 9 months or longer, loses more than 20%, sentiment is bullish, no sudden steep sell off to scare the bullish herd, weak retracement less than 68,2%, weak market breadth.
            This correction does not fulfill a single point of this.

            “Ultimately, I think charts predict nothing.” LOL chart does not work, EW means nothing, technical analysis is bullshit:))) I hear the same over and over again from people which are… sorry but just clueless.
            The correction has 6-12 months more to go but at the end this is not the big bear which you expect.
            You are biased it is obvious and no idea how to read chats… wake up what crash SP500 is less than 5% from the top.
            Enjoy the correction as long as it is running after that you will be disappointed again.

            • See, it is a bear market. We’ve had more than ten months of steady decline (with each high point hitting lower than the previous high). The market only dropped 10% in its first crash down, but perhaps you didn’t notice that all 20% drops begin with 10% drops; so give it time. (Difference is that, unlike almost everyone else, I’m predicting the bear market, not identifying it after the fact. If it doesn’t go down 20%, I’ll agree that it never became a true bear market by how bear markets are defined. Sentiment has been WAY TO BULLISH for months now. It is only beginning to crack up halfway into the bear market. (In case you didn’t notice. Sentiment is not usually too bullish once your halfway into the bear market, but this is the difference, again, between predicting a bear and identifying one after it is obvious. At the start of the present decline and through most of it, sentiment was ludicrously bullish. I’d argue that it sentiment is vastly too bullish now, considering how bad this crash is going to become.

              Keep your seatbelt on, the ride is only going to get rougher.

            • jakartaman

              I am confused being an old SOB-
              But If the usa was my house and I was in debt $19 trillion with no end in sight
              and every year i spend more than I make – and I just go down to my basement and print more$$
              Don’t you think eventually something bad will happen???

            • shushumiga

              Why should it happen now? Why not in 2-3 years as I wrote? Why with 19 trillion $ debt and not with 22 or 53?
              I am watching charts and the charts are telling me there is no signs so far for a bear market – real bear market which cuts the prices in a half not 20% sell off.
              The comparison with 1929 is ridiculous… twisting charts to fit some one’s bias.

            • jakartaman

              I don’t think anyone can predict the timing of the implosion.
              Wether in one month or 3 years its close and getting a lot closer. It is MHO inevitable and its gonna be catastrophic!

            • RichM

              You are right, in 1929 we were a major lending nation, now we are a debtor nation. When the debt reaches a few trillion more, we could be a banana republic….. where there isn’t much to recover from after the crashes.

            • Why now? Because the only two pillars supporting the long bull market were trillions of dollars of free Fed money (QE) and zero interest policy.

              1) The free money has stopped, though that money that was created has not been pulled back out of the economy. So, the lift from QE has stopped … AND THAT LIFT WAS MASSIVE. Even Fed officials, as quoted on this site state that the Fed was deliberately “front-running the market” with QE in order to try to “create a wealth effect.” That massive effort ended, so its support ended. It’s not going to end in 2-3 years. It already ended.

              2) One pillar remained: ZIRP. That pillar is now BEING removed. It is not removed all at once, but interest rates are being adjusted back up. The pillar is being taken down a section at a time. So, that lift is fading. Moreover, the amount of lift it provides is diminishing even when more of it is added. Banks that have gone to negative interest have discovered it makes the situation worse. Other banks are finding that ZIRP is getting to be old hat. It’s an old drug that the market has grown tolerant toward.

              With one pillar gone, and the other being removed, the market is crumbling NOW.

              Another prop to the market (though not a pillar) has bee large amounts of stock buybacks, but those were largely made possible through number 1 and 2 above. With free money and cheap credit fading, stock buybacks are also in decline. (See my latest article.) Buybacks have provided much of the lift to stock prices. Moreover, I suspect those buybacks are largely aimed at helping the executive employees of the corporations keep the benefit of their stock options before the ship goes down. Likewise, they help the major investors sell out without damaging the price of the stock because the buybacks create demand for the massively increased supply of stocks to be sold. Otherwise, those investors would crash the price of their own stocks when they dump them.

              So, two pillars are gone or going, and the third support found its strength from the other two, so its going, too.

              That’s why I base my predictions based on fundamental facts, not charts and graphs. The FOUNDATION is crumbling, so it doesn’t matter what the charts report. REALITY creates charts, not the other way around. Charts can be useful for confirmation (getting a reading on what is actually happening), but they don’t predict the future. The crumbling ground and the badly cracking foundation are all you need to know it is time to move. Once the richter scale (the charts) tell you that a massive earthquake just took everything down, it’s too late.

              Read reality. Use charts to get a check on what is happening. Failing foundations trump numbers every time. Don’t put yourself in the position of reading your chart inside of a falling building.

              The supports are gone, and they were the only thing holding this balloon market up anyway.

              –David

            • Yes, they would arrest you for counterfeiting ; )

            • RichM

              I also think the only reason we have a short bounce up here, is speculation on oil prices which helped the energy sector recover here after being hammered. I think this is short lived, but its hard to make a call on oil.

            • And it is such a foolish basis for a rally (given the threads it hangs upon and ignorance it shows toward numerous other forces impacting the economy). It looks desperate for a reason to rally. The bulls are bull-headed that way.

            • The decline has exceeded nine months now. It has not been steady because this is the first time in history when we have a market falling apart while it is on massive stimulus. If you think this market crash should behave like a normal market crash, you’re not really thinking. You’re parroting history.

              My point was never to say everything about this market matches past crashes but to point out certain things about past crashes that contradict people who say this market is not crashing. One of those things is the notion that markets just fall off a cliff suddenly when they crash big. They don’t. They round off and then crash. In that sense, you’re just repeating what I said in the article. Markets do not go into major crashes by just falling off a cliff. They round off into a downward trend and then fall off a cliff.

              So, I am pointing out that rounding off then falling matches past crashes. Some people believe they are safe because it rounded into a downward trend. My point with that aspect of the graph is that that is exactly the way a really big crash happens. There are too many deep troubles in a big crash for no one to have any sense that it is coming, so the market starts to falter downward, even if few know exactly what the trouble is.

              In this case, the rounded top is much broader, but that is where you have to apply your sense over slavish attention to charts. OF COURSE it is much broader than in the crash of 1929. That is because, as Rich has said, it is happening during a time of massive stimulus, which is HUGELY stretching out the timeline. That’s why, unlike permabears who said it would crash in 2013 and then 2014 and then 2015, I skipped 2013 and 2014, stopped writing much about it until we got into 2015 when I was certain things were finally shaping up for a crash. I was CERTAIN that QE would prop the market up for a long time because QE was massive and it was on top of lowered interest rates that were lowered much further than normal — so a double-dose of massive measures.

              There was no question in my mind that the market would not give way until QE ended. Then zero-interest-rate policy would help keep it floating along for some time but with diminishing returns. The diminishing returns from that remaining stimulus would be why the market’s value rounded downward. Then zero interest would come, and that would be the FIRST fall of the cliff, which it was.

              That brings me to the second similarity that I was pointing out by looking at past crashes, and I am pointing it out because it is not how many people think of a crash. They think, for example, that the stock market crashed on Black Tuesday of October, 1929, and that was “the crash.” They don’t realize that it took MANY crashes to get us all the way down into the belly of the Great Depression.

              My point with the graphs is to demonstrate that but also to highlight that many crashes mean MANY RALLIES, and I have said all along this crash will take a long time to play out (I think, at least a year and a half to find its bottom), and that there will be many false rallies along the way.

              You are right that this rally exceeds a normal bear market rally by far. So, that could mean I am wrong; BUT you would be a fool to jump to that conclusion without pondering it more deeply. We are still under stimulus, as I mentioned earlier, that far exceeds anything normally applied to a recession. We are falling into a recession during a time when the pedal is already to the medal. We are still for practical reasons sitting on the zero bound of interest rates. I don’t think the Fed has ever gone this low in a recession to pull us out. So, what does a bear-market rally look like when it happens in the completely abnormal environment of full Fed acceleration at a time when the returns for that acceleration are wearing off.

              This is a brave new world. So, pointing out certain major similarities to previous crashes on charts does not mean the charts should match up exactly. You have to ask if the inconsistencies can be better explained as this not being a crash or as this being a crash that is happening in an environment unlike any crash in history. In other words, can the differences in the graph of the crash be explained by the differences in the environment, and I think they can. I think they become “the exceptions that prove the rule”:

              1) The top is more broad. Well, it should be since it is happening in an environment of maximum stimulus and rounding down as the stimulus fades.

              2) The rallies are much higher. They should be since they are happening in an environment that provides a lot more artificial buoyancy. We are not on earth anymore. Because of the Fed’s distortion of reality, we are on the moon, so crashes bounce much higher due to lighter gravity of the environment.

              When you find that the anomalies can be readily explained by the differences between the artificial financial environment and the normal environment, then they reinforce the conclusion. That’s what is meant by the expression “the exception that proves the rule.”

              As for your statement that a bear market falls 20%, the market has already fallen that much from its highest point in 2015 to its lowest in 2016 by some indexes. It has fallen half of that distance or more by all indexes. And you would be mistaken to presume that it is not a bear market just because it hasn’t reached the point yet.

              No bear market reaches that point until it reaches that point! But that doesn’t mean that it was not a bear market when it was down only 10%. It simply wasn’t KNOWN to be a bear market because it doesn’t get officially called that until it hits that number. In other words, if you are going to wait to respond to the market as a bear market until it meets the technical proof of being one (by dropping 20%) then you have completely missed calling the bear market.

              Given that major market crashes happen in many legs, it would be foolish to say “This isn’t a bear because it didn’t crash a full 20% in its first leg.” And its odd that you make that statement, since you seem to claim yourself it is going to reach a bear market level. I never said it has reached that level (though by some indexes it has), and I never said the charts match the Great Depression. I’m comparing the top of the charts — how the plunge begins in a rounded turn to decline that sustains for a considerable time (though no nine-month magic formula) and the fact that it happens in many legs with rallies, not in one big crash.

              The similarities confirm the possibility that this is the start of a major crash, but they certainly don’t prove it. That can only be proven after the fact; but I don’t wait until the facts run over me to move out of the way.

            • shushumiga

              The analysis above one word – junk. Sorry I am not a perma-bull, but this above is really a piece of junk.

    • RichM

      Perma-bear compared to what…. a perma-bull that has been fed feed in the form of QE? This IMO is the very reason it is not “too” similar to the 1929 and 2008 charts…. because of all the QE which propped it up and the artificially low interest rates. There is no doubt in my mind, we are in a bubble. Without the stimulus, it would have already crashed and we’d be recovering out of it by now… if we survived it. So they kicked the can down the road and so now this crash could be much worse. The only way it will be able to not crash is with another round of QE and one that is ginormous in comparison the the last….. which they might do. Yet, I suspect it will be much less effective and not prop up the bubble for nearly as long this time. I am shorting the market until QE is announced, then I will short it again a few months later. I’m not a time traveler either though. haha

      • shushumiga

        This is the problem with perma-bulls/bears…. you are not trading the market you are trading your emotions.
        QE, FED, bubble, debt,crash…. bla,bla,bla on and on and on. Every time the same bullshit.

        Shorting against the trend does not make you right,brave or smart it makes you just another stupid perma-bear.
        Exactly the same makes the post trying to find some ridiculous similarities between 1929 and now to justify some personal perception for “crashes”.
        It is simple the trend changes when you see impulse in the opposite direction and weak retracement – well visible in 1929 and 2008. What do you have now? – retracing twice more than 80% is not weak retracement.
        If you are lucky there will be one more zig-zag lower to 1700 for SP500. The problem with “traders” like you – you will short all the way up the final mania phase of the bull market and loose most of you capital exactly when it is time to short.

        I have seen many like you and I have all this behind me. I am just trying to help, but it is always the same….

        • And that is exactly why Permabulls lose money when stock markets crash. The bulls don’t see it coming because their eyes are focused down on their charts and not looking out at the world around them. If you wait for the weak retracement of a chart to prove you are in a bear market, you have already died and gone to investment hell.

          The only possible way to know that a charts retracement is weak is to wait until the retracement turns around, and the market clearly is running down again. By the time you do that, you are already well into the second leg of the crash. You are selling in a rapidly falling market.

          If you find yourself in that position, the only thing you can do to save yourself from market hell is to sell everything below market value in order to get out immediately. Those who stay in until that way-late juncture and who keep trying to get the best price they can (on any asset in any kind of market) just wind up riding the market all the way to the bottom.

          It’s hard to get out the exit when you wait until the fire alarm is ringing and everyone is running for it. The wise person smells smoke and doesn’t wait for the alarm (the charts) to tell him what he should do. He makes his way to the exit ahead of the crowed. He sees the bear market in advance (which would have been back in early December).

          Shorting against the trend makes you right when it works. There are many permabears who call bear markets routinely and then brag when they are finally right and say they are the one who saw it coming. They get away with it because none of the other experts saw it coming either.

          But I don’t believe in following trends … or charts. There are numerous reasons to believe this market is crashing all around us. The wise person got out before it became a market squall.

          –David

          • shushumiga

            Garbage and more garbage:
            “The only possible way to know that a charts retracement is weak is to wait until the retracement turns
            around, and the market clearly is running down again”
            “Ultimately, I think charts predict nothing.”
            “But I don’t believe in following trends … or charts.”
            “There are numerous reasons to believe this market is crashing all around us. ”

            For you the market movements are voodoo magic.
            You are sooooo clueless, and you are describing the behavior of a amateur like you.
            Your “chart interpretation” is a joke. When you do not know what you talking about just leave it.
            I am not permabul or permabear. I do not care if the market will move higher or lower and imagine not everybody is so clueless like you.

            • Your charts are nothing but astrology. I use charts to demonstrate what is happening, not to prove where the market is going. Understanding the foundations of the market and what is happening to it right now — getting in there and seeing the rot and the crumbling — is what tells you whether the house is about to fall. The charts are Richter scales that tell you how much the house has fallen at any given moment. Reality rules. So, regardless of what charts say, the rot in the foundation will win the day every time.

              For some reason you are not even able to see the simple logic of “The only possible way to know that a charts’ retracement is weak is to wait until the retracement turns around, and the market clearly is running down again.” I mean that’s a simple fact. You cannot see that it is weak until it has proven itself to be weak, and one way it proves that is by not retracing very far before it turns around (as well as by its breadth).

              You won’t know the retracement was short-lived until it has gone clearly downhill again. By then, it is too late. As for measuring its weakness by breadth — how many stocks are involved and how many investors — that has some merit; but it is no magic formula either. It doesn’t always pay to follow the herd.

              –David

            • shushumiga

              And more garbage from an amateur. Charts are not astrology, the charts are everything. The charts tell you what the big boys with the money are doing. Anything else is personal perception and the market does not care about your personal perception.

              Good example – “Understanding the foundations of the market and what is happening to it
              right now — getting in there and seeing the rot and the crumbling” – bla bla bla your fantasy. The same repeating for years. Means nothing market moved higher and have one more move higher before we see the big bear.

              ” the simple logic of “The only possible way to know that a charts’
              retracement is weak is to wait until the retracement turns around, and
              the market clearly is running down again.” I mean that’s a simple fact.”

              The fact is you are clueless. It is visible on a chart if a move is weak or not before it reverses.

            • Actually, I think you’re nothing more than a troll. You my statements garbage and just based on opinion and emotion, but you give no basis for claiming they are wrong or are nonsense, other than your own opinion and your emotion over having been misled in the past by permabears. That makes you a troll because you don’t argue against my statements with anything you can objectively demonstrate, you just keep lashing out with vitriol against them.

              It doesn’t bother me, but we could waste days with you saying, “You’re an idiot,” and me saying, “No, I’m not.” When I call people an idiot, I usually say exactly why they’re an idiot — why their ideas are demonstrably wrong. I point out the illogic or the contradiction. Anyway, we could waste your time and mine with the “you’re an idiot” / “no I’m not” kind of childish argument. I’d rather just let time be the judge between us.

              Your claim that I’m a permabear shows you have no knowledge of what you speak anyway. You repeat the claim even after I’ve pointed out a couple of times that there have been years in which I have stated outright that bad was going to happen economically that year, and nothing did. You also offer nothing to support your views that charts show you the way to the future. You are basically just arguing by assertion, and that’s not really an argument. Again, it’s more like troll behavior.

        • RichM

          Your points are well taken. So let me ask. How would the market have moved over the last 5-6 years if there was no TARP, QE, and if interest rates were not artificially kept down? How can there be a normal manic phase of this bull market if this is a fake bull market fundamentally speaking? So, when the whole bull market has been propped up and not based on a growing and vibrant economy, how can you predict there will be a normal manic phase coming?

          I do concede that perhaps with more QE they can continue to prop it up for who knows how long. Yet, due to the fact they are taking these measures, nothing was fixed at the core and so this crash will be catastrophically worse than it would normally be….. IMO.

          • shushumiga

            We are on different waves:
            1 You are on this wave – economic discussions,QE,FED bla bla. It’s anyones guess, completely useless for trading. You are trying to find a rational explanation and to trade it – WRONG traders are irrational.
            2. I am on this wave – trading, I can read charts when the price moves higher long, when it moves lower short. THAT IS ALL. What you are writing is irrelevant. I do not care what the reason is.

            So my answers:
            ” How would the market have moved over the last 5-6 years if there was no TARP, QE, and if interest rates were not artificially kept down?” – what would have been if…. irrelevant, we can only guess, probably lower amplitude.

            “How can there be a normal manic phase of this bull market if this is a fake bull market fundamentally speaking?” – simple human psychology. It is every time the same greed and fear causing irrational behavior. Central banks just amplifying the moves up and down. The humans are the same stupid monkeys like 100 years ago, I do not see now any difference.

            “So, when the whole bull market has been propped up and not based on a
            growing and vibrant economy, how can you predict there will be a normal
            manic phase coming?” – did we have this in 2006-2007? This is a cyclical bull not secular bull market, make a difference. I claim too, that there will be one more big bear cutting the prices in a half.

            “Yet, due to the fact they are taking these measures, nothing was fixed
            at the core and so this crash will be catastrophically worse than it
            would normally be” – it will last longer than 2008 3-4 years, and it will feel worse for average Joe, but it will make higher low than 2008 in nominal value. The lower low will be in inflationary adjusted value.

  • Chris P

    Great article as always Dave. I would say that we will see a very different ending to this depression then was seen back in the 20s-30s. With the world central banks working together and also trying to remain on top of the pile there will be no end to more money and bailing out oil & gas or autos, whatever it takes they will continue pushing the money until faith is destroyed in any currency. That is my humble opinion but I have been wrong so many times a broken watch is right more times than me. Keep up the good work.

    • Thanks, Chris. I don’t disagree with any of that. The times are very different in terms of how central banks work together and in terms of the extreme stimulus they have already applied, which goes far beyond anything seen in the thirties. I believe the central banks will keep trying all they can because the alternative is to admit, “We’re wrong and we failed miserably.” They will never do that. Reality will do it to them, but they’ll never admit the plan is failed until they lie exhausted on a heap of rubble, and then they’ll still find someone else to blame.

      However, I think their efforts will now be a strain too big for them to manage and will only be rivaled for success by the programs we have already seen in Japan and Europe. And, if Japan is the best success they can hope for, then we’re in for a world of hurt.

      They have now pushed way beyond the peak of the diminishing returns curve. Just as the law of diminishing returns would indicate, once you round the curve too far, you actually get a worse situation every time you administer your solution. That’s what we now see in both Japan and Europe, where the downward curve of diminishing returns has gone as negative as the interest rates the central banks have moved into in order to keep up their stimulus. They’re not generating any stimulus at all, but they are generating serious bank stresses. The more they do, the worse they are making things at this point.

      –David

  • Craig A. Mouldey

    I just listened to an interview with Egon Von Greyerz who says pretty much what you are saying. We need to keep in mind about 10 million starved to death during the great depression in a country where there was a lot more farming and people were generally not brain dead and were able to do things for themselves. This time it is far bigger. The international bankers can only manipulate so long. At 62 I don’t expect to ever see a world that is normal again. The new normal looks rather grim. It makes heaven much more appealing!

    • jakartaman

      I am 70 and fear only for my children and Grandchildren
      In humble opinion, there will also be major civil unrest in this country and all over the world.
      There will be a die off – how much?
      One must ask a few basic questions:
      How long will it last?
      How bad will it be?
      How does it get fixed?
      What will the USA and the world look like when we come out of it?
      We we still have a government and what kind?

      • The dissatisfaction among citizens hasn’t grown to anger or rage yet for most people, but when they see us go back down into the abyss that we started to enter in 2008 and see banks get bailed out that were too big to fail then and are twice as big now and see more corporate execs fly with their golden parachutes and see that the problems are all far worse, not better, and that all hope of stimulus has already been exhausted as has the nation’s ability to raise its debt that quickly again without causing a severe debt crisis, then some of the anger that is now finding expression through Trump and Sanders will turn to rage and many of those who have not felt angry because they have been insulated will become angry, and the breakdown in civil accord will give anarchists greater reason and opportunity to to be destructive.

        We are a different people than we were in the Great Depression, and so this depression that we are starting to realize is going to look a lot angrier. If people think the populace is angry now, based on the popularity of Trump and Sanders, wait until they see how angry people become when the economy breaks up in major pieces like an ice flow all around them and starts flushing everything out to sea.

        Our politicians had eight years of anesthesia known as “stimulus,” which they could have put to good use if they had made all the structural reforms necessary to create a strong economy, but they don’t even know what that kind of economy would look like, and where they do know what to do, they’d rather see the nation drown in its own blood than see the other party get credit for saving the world.

        There will be no anesthesia for the next round.

        –David

        • jakartaman

          Great reply and I am in 100% agreement.
          Paul Ryan said he is disheartened because of the anger at Washington and the primaries. He jst told us that he is clueless and lives in a Bubble – They have not seen real anger, but will soon – ammo up!

          • Wow! Shows how out of touch the leadership of the parties is. What on earth does he think they have accomplished that ANYONE, Republican or Democrat, should be happy about? Clueless, indeed, to what is happening economically all around them. Eight years of obstructionism, may have stopped Obama on some of his plans, but it certainly has not done a thing to right any of the economic ailments of this nation. They have squandered everything, and I can only hope he and all his colleagues see a great deal more rage for having spent eight years dedicated to obstruction without a single positive, disciplined or helpful idea to put us on a better track. Wait until they bail out their cronies another time … or try to.

            • CactusPatch

              Obstructionism? Really? I would call it 8 years of complicity between the Establishment Democrats and the Establishment Republicans. The important people, their crony capitalist sponsors, have been taken care of. The needed bail outs were approved. The military adventures to protect their assets in foreign lands were approved. The NSA provided the industrial espionage necessary to maintain their edge in global markets. All is well for the 1/10 of 1% who game the system.

            • You make a good point, Cactus. Several, actually. I guess it’s more like obstructionism on the surface. The Republicans make a big pretense of obstructionism, and they are more than glad to oppose Obama on anything that might actually be helpful, such as their opposition in the beginning toward funding shovel-ready projects because it would blow the deficit, though they had no problem blowing the deficit to bail out bankers. They certainly bring no creative ideas to the table themselves.

              At the end of the day, however, you’re right. Republicans and Democrats are Frick and Frack. They’re certainly all serving their cronies on Wall St. They certainly have both wholeheartedly supported bail outs for banksters. Republicans came up with the idea, and Democrats have joined in full support ever since. Neither party has pushed to put banksters in jail. Neither has done anything to break up banks that are too big to fail into smaller components that stand alone as separate companies (as was done with Ma Bell).

              The NSA espionage was all launched by the Republicans, but Obama has fought to keep it as it is, and Democrats have done nothing effective to resist this broad expansion of intrusions. George Bush, head of the “party of small government” created a whole new and vast bureau of much more intrusive government — Homeland Security — to solve the problem of government agencies that weren’t communicating with each other, when he could have solved the problem by banging the heads of their leaders together until they do communicate. Simply tell them, in six months you better have worked out a system (which I will secretly test) to make sure that all vital information gets shared with proper clearances by all departments, and if you fail the test, you are fired. But the leaders at the top are his cronies, too.

              –David

          • Ranger

            There will be no fighting back from the people of the nation. They will surrender and give up their gun the moment the squad car pulls up in the driveway.
            If the public hasn’t defended itself yet, I highly doubt that they’ll ever do anything.

            They’ve been killed in theaters, malls, and clubs. Yet, not one pulls a gun and defends anyone, nor themselves.

            Americans, including the worthless and cowardice military, are useless.

            • I wasn’t really thinking in terms of their fighting back with guns. The president has the military, and their guns are bigger; so, anyone who takes on that fight will die or wind up arrested, as they choose.

              What I am hoping is that the public might smarten up enough to start voting against establishment politicians. They’re showing signs of it with Trump, who would ordinarily make a lousy choice for president; but because he’s speaking strongly against the establishment, anti-establishment people are rallying around him.

              The Republicans are running more scared right now than I’ve seen them in my lifetime because they know their party could come apart at the seams. For the first time that I’ve seen they don’t have every candidate in their pocket, and the one who isn’t in their pocket (apparently) outdid them all in the public vote. They’re not used to not having full control over all the options presented to the voters.

              –David

          • Indeed. Ryan should be gladdened to see that people are angry with the establishment, but I’ve always believed he was totally establishment, himself. Therefore, I am heartened that he is seeing clearly that there is a groundswell against the establishment, which means against him as part of the establishment. His disheartening is my cheer because he is so establishment, offering only the same answers Republicans have put forward for thirty years.

        • Ranger

          I disagree. Only because the public are mere robots today with no thought processes at all. I work with people today that believe that there isn’t anything wrong at all. The moment you mention anything to them, they start with the name calling and have no facts or truth to dispute with.
          Politicians have never had the public’s back, ever! Every President since Woodrow Wilson have been hand selected and installed. Every member of Congress is corrupted and criminal in all their actions.

          Just look at the comments here. People talking about Paul Ryan as if he was some decent person that cares. Ryan is a corrupted America hating criminal, and hates you and I. Yet, people talk like the politicians have any care or desire to do anything. As I mentioned, the public are brain dead.

          • The only thing that give me hope is the number of angry people who are coming forward because of Trump and Sanders, now that people among both Democrats and Republicans have had an actual option that is not the establishment in either party.

            It may be that their reasons for being angry have less to do with the economy than other things, so there is likely not a critical mass that can change things, but that could change quickly if people see another economic crash that happens for similar reasons.

            I’m not sure Trump, in the end, will look out for anything other than Trump because his life says that is all he ever looks out for; but I’m glad to see that people are, at least, STARTING to express outrage against the establishment.

    • I know the Obama Admin and its pocket full of bankers will do all they can to maintain the illusion until the end of his term to safeguard his hopes (I believe) of becoming UN Secretary General, but I really do not see how they can patch things together that long.

      Maybe, maybe they will keep us on this downward trend until Obama moves on, but I don’t know how. They have pretty well exhausted their ammo, but they may come up with something big that few have ever thought of or try “helicopter money,” as Michael Snyder and others are writing about. That’s why Donald Trump sounds like he hopes it will break apart now. He’s concerned that they’ll hold the fractured parts together until he’s in, and then it will break up, and he’ll get blamed for the mess.

      Already, you read many bankers and economists and brokers and stock analysts saying that Trump will be a disaster for the economy. Part of that is because he has not fondness for their Fairy Godmother, Yellen, and her pack of friends, but partly (I think) because they’re already looking to assign blame to someone other than themselves.

      –David

    • Ctaj

      You remind me of a sign I once saw on the wall of a Leadville, Colorado bar (in an old mining town):

      “If been lied to, knocked down, spit on, and kicked. The only reason I hang around is to see what’s going to happen next.”

      Hang in there. If nothing else, it’s going to be interesting.

      • hahaha. It is going to be ‘interesting’. And I suspect you and I are going to outlive your and my country. It’s a real mess.