Will 2010s be like 1930s? I sure hope not.


Wow.   I thought the crash in October 1929 brought the market down to  the low levels that signalled the great depression.  So I was surprised to learn that after a large rebound in the DOW it was really the declines of 1930 that brought the DOW down into the depression era numbers.   Look at the 1920’s rise of the DOW and fall to about 250 after the crash of October 1929:  Graphs Source is Dow Jones Indexes

Now comes the scary part.    Post crash DOW of about 199 was about FIVE TIMES the DOW lows seen during the great depression with a DOW at 41 (yes, that would be forty-one) in 1932.

OF COURSE you can overgeneralize from the depression data.   Today billions of shares trade in a market far greater than at that time, the global economy is totally different, etc, etc.

However what really concerns me is the fact that the drops we’ve seen of some 40% from DOW highs of the late 1990s look more like the 1929 prelude to a depression than I’d been thinking.   Are we in for just the modest rebound we’ve seen from the market lows of a few years ago and then a long slide into economic despair?    Is this even knowable?

Warren Buffett, in an excellent interview on Charlie Rose a few days ago, seemed to think that the bailout / rescue plan will avert a catastrophe, but he was clearly thinking there was at least some trouble ahead bailout or not.

Buy before the rumor, sell before the news?


One of the really intriguing aspects of the blogOspheric chatterfest is how the big markets tend to react to rumors from key business related blogs.    When TechCrunch reported yesterday that talks between Microsoft and Yahoo had resumed Yahoo stock increased, only to fall after several other blogs reported the rumors as false or weak.

Although I have no reason to believe that Mike Arrington or Henry Blodget are trading options based on their market-moving blog reporting, I’m not at all clear it would be illegal for them to do so as long as they were reporting “real” rumors.

Henry answered at his blog that posting a false rumor to manipulate for investment purposes would likely be seen by SEC as a violation but this leaves a lot of gray areas open for an aggressive options trader/journalist. 

Here’s what I just asked Mike Arrington over at TechCrunch:
Mike just to set the record straight the ValleyWag poster “Mike Arrington”, who claims to have made 10k trading on Yahoo rumors, is fake … right?

More importantly I’m very interested in your views on legality/ethics of trading Yahoo options based on the rumor mill. Let’s say you heard a solid rumor that MS was about to offer $37 for Yahoo and Yahoo was going to sell. Could you legally trade on that before you posted it? One second after?

What if you emailed *me* right before you posted, I think I could legally trade based on current SEC rules, right?

P.S. What kind of Single Malt Scotch do you like? : )

Although I have no plans to manipulate any markets, it is reasonable to assume that if a market can be legally manipulated it *will be* manipulated, and soon.