Is The Panic Worse Than The Virus?
The Great Panic of 2020 is already one for the history books. Yet the damage has only just begun. We suspect the stock market crash, economic destruction, and forfeiture of freedoms will persist long after the coronavirus hobgoblin has been put to bed.
With respect to the stock market, the modus operandi of the last 11 years is being stood on its head. Rather than ‘buy the dip.’ The new divine mantra is ‘sell the rip.’ Here’s why…
If you recall, the U.S. stock market commenced a multi-year swan dive in autumn of 1929. About that time, the economy also commenced a decade long Great Depression. Given the rapid and relentless stock market carnage over the last month, and the prospect of a lengthy depression, a closer look is in order.
From September 3, 1929 to November 13, 1929, the Dow Jones Industrial Average (DJIA) lost 48.9 percent. Then, as rarely noted, it rallied 48.1 percent through April 17, 1930. This had the adverse effect of luring the buy the dip crowd back into the stock market just in time for the next massacre.
The 1929 through 1932 bear market, as noted by Pater Tenebrarum, was like a rubber ball bouncing down stairs. With each bounce, even the most savvy of investors were given another chance to lose their money. Taken in sequence, the repeated bounces provided many opportunities to lose money over and over again.
In the end, the bounce up between November 13, 1929 and April 30, 1930, turned out to be the ultimate sucker’s rally. The DJIA subsequently crashed 89.2 percent from its initial peak, along with the hopes, dreams, and aspirations of an entire generation.