The Depression 2008 vs. the Depression 1929

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Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

The first Great Depression started with the October crash of 1929, but the market didn?t hit bottom until 1932. So far in 2008, the market hasn?t crashed; however, this year, similarly, will mark the end of an economic up-cycle, and that?s putting it mildly. The Dow is down 46%, falling unrelentingly from the peak of 14,165 in October 2007 to Friday?s close of 8,046 (and that was up 494 from the previous session). This is a greater percentage loss than on October 24, 1929. In addition, the rate of decline of the Dow 2008 has accelerated (see chart below).

Last week, Nouriel Roubini, professor of economics at NYU?s business school and advisor to central banks and governments, in making a case for stag-deflation said, ?. . . we are in a severe recession. . .? Early to point out the housing crash, he is in good company with George Soros and Paul Volker, both of whom predict that this depression will be worse than the previous one (see G20 Meeting a Non-Event Depression Full Speed Ahead, November 16, 2008).

The 2008 Dow looks a lot worse than the Dow during any of the previous major correction. Its fall-off is far more precipitous then even the crash of 1929.

Here?s a time-compressed picture courtesy of dshort.com comparing the four worst corrections.

According to this chart, we?ve got several years and another 40% drop to go before reaching bottom.

Here?s some more perspective. Last Friday, the market was up 494 points. I think CNBC was calling the bottom in ? again. Here?s a chart of the day?s performance.

No wonder they were so excited; and it happened so fast. We?ve been getting last-hour-of-the-trading-day action the way we had been getting financial-Armageddon news over weekends. Friday was a good day, but how does it fit into the overall trend? Let?s put Friday?s move into trailing-12-month perspective.

Not even a blip on the screen.

I?m Convinced You Say; Now What?

We are already in hard times and it?s going to get tougher. Start preparing as you would for a natural disaster or war. Dispassionately, make a list of priorities based on what you need?not what you want or what the neighbors have?those things you can?t do without.

You need food and shelter. Unless you live and work in a city or town you probably need a car, but maybe not. If you lost your current residence, where would you go? The answer is not ?I don?t know.? The answer is I will move in with my family, with friends, live in an RV, my car, whatever. Explore what?s available in your community. Have a plan.

A lot of people have already lost jobs, more than a million, as a matter of fact. If you lose your job, how long can you stay in your current home . . . make your car payment . . . pay your credit cards? Will you be able to make COBRA payments? Start figuring out what you would do if you lost your livelihood.

If you still have savings, how much will you spend before enough is enough? The answer is not ?until my savings are depleted.? It?s the same with credit cards. If you don?t have much cash, make sure you have some credit available.

Frugal is in.

Last 3 posts by Morgan

• Goldman bonuses largest in firm's 140-year history - June 21st, 2009
• No "green shoots" in employment - June 21st, 2009
• Roubini: Obama banking reforms get it 75% right - June 20th, 2009

Tagged as: bear market, cash, Credit, credit cards, depression, DOW, recession, roubini, savings