We know that history does not repeat but as Voltaire eloquently...

We know that history does not repeat but as Voltaire eloquently puts it, "History rhymes".

I know you guys are done dusted and tired of my continual assimilations between 1929 to 1933 to today (2007 - 2010) but if you bear with me and take a moment to assimilate you will see that the rhymes are similar, whilst there are also differences... I would like to examine these differences and similarities and then look into the Crystal Ball for this year (2009) and next (2010) and take a look at what may eventuate.

The Differences between 1929 and Today:

1. Decrease in Money Supply vs. Government Bailouts

2. Gold Standard vs. $US

3. Lack of Government Spending (this is to come)

4. Closure of Borders to Trade


The Similarities between 1929 and Today:

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931.

Irving Fisher argued that the predominant factor leading to the Great Depression was overindebtedness and deflation. Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles. He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust. The chain of events proceeded as follows:

1. Debt liquidation and distress selling (this is happening right now)

2. Contraction of the money supply as bank loans are paid off

3. A fall in the level of asset prices

4. A still greater fall in the net worths of business, precipitating bankruptcies

5. A fall in profits

6. A reduction in output, in trade and in employment.

7. Pessimism and loss of confidence

8. Hoarding of money

9. A fall in nominal interest rates and a rise in deflation adjusted interest rates


The Crystal Ball for 2009 and 2010

We all know that Fisher's 9-points are already occuring, so what can we expect for this year and next on the Markets and in our Day-to-Day lives?

The 9-points will continue to be played out... but what is glaring different this time is that we are seeing an arm wrestle for economic supremacy between the US and China. If you listen to Obama's Innaugural address, he hints at this.

In 2009, I expect that we will see the Yuan unpeg and fight for supremacy against the $US, I have said this many times before. As it does so, America's economy will be stiffled but it also has benefits and this article very very nicely sums up the cause and effects Hyperinflation Begining in China and Will Destroy the U.S. Dollar.

The Governments will invoke capital expenditure on a massive scale in infrastructure. The benefit of this is the blood in the economy. Every Dollar spent gets spent again by those who earn it. This is classical Keynes... it's better to dig a hole in the ground than to do nothing at all.

As this plays out though 2009 and 2010 the economies will start to get back on their feet, but due to their massive defecits do not expect the US or UK to pull out as fast as Australia.

Australia is in a very fortunate position as it is trading partners with both the English Speaking World as it is with Asia. The problem for Australia is that we will be the client and they will be the Bankers and we all know what can transpire here.

As to shares I do not expect that we are going to see a positive nor negative overkill either way, their may be days and months of 10-15% changes but they will oscilate for the majority of 2009. It is interesting to look at the daily percentage changes ever on the Dow. What is most interesting about the figures is this (refer to table below). 1929 appears twice as does 2008, 1930 doesn't appear at all (therefore will 2009 appear?) but each of the 3 years following 1931,1932 and 1933 appear strongly, suggesting that's it's probably best to sit out 2009 until the last quarter. But in which market? Not the US, not Europe but in China and Australia.

Largest daily percentage gains on the Dow.

Date % Change
1933-03-15 +15.34
1931-10-06 +14.87
1929-10-30 +12.34
1932-09-21 +11.36
2008-10-13 +11.08
2008-10-28 +10.88
1987-10-21 +10.15
1932-08-03 +9.52
1932-02-11 +9.47
1929-11-14 +9.36
1931-12-18 +9.35
1932-02-13 +9.19
1932-05-06 +9.08
1933-04-19 +9.03
1931-10-08 +8.70
1932-06-10 +7.99
1939-09-05 +7.26
1931-06-03 +7.12
1932-01-06 +7.12
1932-10-14 +6.83

PS: The Number 9 (1929 vs 2009)

Nine is considered a good number in Chinese culture because it sounds the same as the word "longlasting".

Nine is strongly associated with the Chinese dragon, a symbol of magic and power.

There are nine forms of the dragon, it is described in terms of nine attributes, and it has nine children It has 9x13 scales, 9x9 being yang (masculine, or bad influence) and 9x4 being yin (feminine, or good influence).

The dragon often symbolizes the Emperor, and the number nine can be found in many ornaments in the Forbidden City.

The circular altar platform (Earthly Mount) of the Temple of Heaven has one circular marble plate in the center, surrounded by a ring of nine plates, then by a ring of 18 plates, and so on, for a total of nine rings, with the outermost having 81=9¡Á9 plates.

The name of the area called Kowloon in Hong Kong literally means: nine dragons.

The nine-rank system was a civil service nomination system used during certain Chinese dynasties.