That 1937 Analogy Fits the Bigger Picture

Doug Short does a nice set of analyses and charts, and does a take on how well the current market is tracking 1929-1945. His key chart shows the constant-dollar S&P, overlaying 2000-present (blue) on 1929-1945 (red). It is striking how closely the key turn dates seem to line up, especiaslly with the drop in the past few days matching the red drop on this chart:

We avoided the big drop that they got in 1932, and have now settled into a pattern that would suggest a further drop ahead, and even a lower low than last march 2009, but not the deep collapse touted by the über-bearish commentators. His chart even suggests timing for the low: Fall 2012.

The charts look different in nominal terms, but over longer periods the inflation-adjusted constant-dollar index is a better comparison. There are several deflators to use; Doug chose the CPI, which has issues due to changes made to ‘save’ social security in the 1980s. Using the CPI prior to those changes would have shown a deeper drop in 2007-9. It is striking that even with the unadjusted CPI, we fell deeper in 2009 in percent terms that at the comparable time in 1938.

A lot of these comparisons are done with the Dow, but the S&P is a broader index which should paint a more accurate comparison. It also gives a different and more troubling picture. It is well known that the peak in 1929 was not breached again in the Dow until the 1950s, and in the inflation-adjusted Dow, not until the 1960s. The constant-dollar S&P skimmed slightly higher than 1929 in the ’60s, but did not get back above permanently until 1985:

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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