From: John Conover <john@email.johncon.com>
Subject: Re: [svlug] RedHat scam? I don't think so...but misunderstood? Yep.
Date: 30 Jul 1999 21:49:08 -0000
John Mark Walker writes:
>
> What happened was that after the market corrected, i.e. crashed, many who
> had *borrowed* money and sunk their life savings to buy stock found
> themselves in a panic, and the market went into a death spiral along with
> the economy. Of course, in this wide-open internet investing world,
> everyone seems to conveniently forget this. Just because we've been in a
> bull market for the last 15 years and everybody's grandma holds stock does
> not mean this will continue ad infinitum.
>
Kind of depends on who is telling the story. Most economists are of
the opinion that the crash did not create the economic woes of the
30's, it was the other way around-it was a contagion created by the
collapse of the German banks in 1923 that created a global economic
catastrophe that reached the US in 1929. The market did drop the
maximum percentage it ever had on Black Thursday, but then bounced
back over the next weeks and months. However, after that, it just
deteriorated over the following 14 months, and lost 90% of its value
by mid 1931. It did return to its pre-crash valuation until mid 1956.
But you are right, there was a lot of panic as the paper tape "Level
II" day traders of the era discovered that they were over leveraged on
margins in the market bubble that started in 1924. See:
http://www.johncon.com/ntropix/FAQs.html#bubbles
for particulars.
If the historical probabilities hold, (and the entropic economists
claim they do, FWIW, YMMD,) and using 1994 as the last year the broad
market indices turned in negative numbers, then there is a about a 40%
chance of the market bubble continuing through the year 2,000. (This
does *_NOT_* mean a crash is imminent-it might be, and might not. A
crash where a market looses 90% of its value in a little over a year
is quite a rare event-occuring about once every 750 years, or so,
according to the entropic POV. More oft than not, markets just stall,
and move laterally-the chances of that happening for a 25 year
interval is much higher-about 20%.)
BTW, ever consider that Linux's momentum is a bubble?
John
--
John Conover, john@email.johncon.com, http://www.johncon.com/