A Big Picture View

[Click chart to enlarge]

With the markets having plunged at an unprecedented rate over the past year, it helps to look at things in a historical context to see if any parallels exist.

The chart above does a fine job of showing were this current decline ranks in terms of past market disasters. I have featured it before, but it now has been updated through 3/5/09. It’s courtesy of Doug Short, and I appreciate the efforts that went into producing this gem.

To me, there are only 2 lines of interest at this particular time. The gray line, which shows the effects of the crash of 1929 and the superimposed blue line, which demonstrates the drop of the current bear market.

The similarities are striking although the 1929 the initial crash happened much faster than the current one. What turned out to be devastating back then was the rebound after the initial -47.9% drop, which lured many investors back into the market believing that the bull had returned with full force.

That wrong assumption turned out to be deadly for those holding on to their positions for dear life until there was not much left when the bear made its final curtain call after having destroyed the Dow by -89.2%.

Looking at the current bear (blue), which is showing losses of -56.4%, it becomes clear that the bottom may not have been reached. Nobody knows for sure, but those continuing to cling to their buy-and-hold philosophy have learned nothing from history (and bear markets) and may be destined to repeat it.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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