# Too much like 1929



## Lucky (1 May 2007)

Interesting article from prudent bear drawing parallels to the 1929 Crash and subsequent depression that followed.  Anyone care to comment?  Or is it different this time around?

http://www.prudentbear.com/articles/show/2001

_As US real estate prices fall and depress US economic growth, private foreign investors begin to withdraw their capital from the US financial markets. This capital flow would by itself act to elevate the currency value of the country that it is returning to. However, the governments of developing foreign countries have policies in place to fix the exchange rate of their currencies. In order to maintain this fixed exchange rate, foreign central banks will print their own currency and exchange it for US dollars (which are then invested into US government debt). The amount of money printed and exchanged into US dollars by the foreign central bank will necessarily equate to the amount of private capital returning to the country. These central bank policies will act to artificially keep the value of the US dollar elevated and artificially keep US interest rates low._

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_“When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.

The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom.  Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.” (end)

Do we see any parallels here?

The two major players in the world financial system at that time were the United States and Great Britain. The United States was the emerging industrial power, whereas Great Britain was the mature and stagnating industrial power. The central bank of the emerging industrial power (the US) printed money in an effort to prop up the economy of the mature industrial power (Great Britain). The inflation of the money supply resulted in the overheating of the economy and the stock market of the emerging industrial power. It was the crash in the stock market of the emerging industrial power (the US) that brought about the crash in all the world’s stock markets and the Great Depression followed later.

Now fast forward to today, and what you see is China as the emerging industrial power and the United States as the mature and stagnating industrial power. China is printing money in an effort to prop up the economy of the mature industrial power (the US). The inflation of the money supply is resulting in the overheating of the Chinese economy and stock market. Very interestingly, on February 27, 2007, it was the sharp 9% one-day drop in the Chinese stock market that led to the sharp drop in stock markets worldwide, including the US. People may be conditioned to think that economic events in developing countries pale in significance to economic events in the US, and may fail to see how what happens “way over there” in China would have any significant impact on their economic well-being. But how different the truth really is. I think most people even now after the February 27th turn of events, fail to grasp why the US stock market sold off so sharply after the Chinese stock market sell off occurred first. The idea that a foreign stock market could dictate what happens in the US stock market almost offends the American sense of national pride (so the event is casually dismissed as “market irrationality”). A word of advice: you better get used to it, as there is much more of that to come. The crash is coming._


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## KIWIKARLOS (1 May 2007)

I would suggest that this is a main reason why China is starting to diversify its foriegn reserves. Things aren't exactly the same now as they were then either.

There are two major emerging economies been India and China they both have huge trade with countries other than the US.

America is no doubt the worlds largest consumer but as there growth and consumption are slowing many other countries is growing. Including China which recently announcemed plans to encourage domestic consumption.

As a whole wouldn't World trade be far more diversified than back in the 1920's ?

Does anyone know the percentage figures as to % of total global economy America is now compared to england in the 1920's?


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## Knobby22 (1 May 2007)

I think its funny that many of the uber bears have bullish names like Lucky, Uncle Festivas and Out Too Soon.

There used to be a band called Fun Boy 3. The most miserable band ever.


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## constable (1 May 2007)

Knobby22 said:


> I think its funny that many of the bears have names like Lucky, Uncle Festivas, Out too soon. All very bullish.




too many bears and not enough bear traps! 
isnt there enough "sky falling in" threads already??


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## Uncle Festivus (1 May 2007)

Knobby22 said:


> I think its funny that many of the uber bears have bullish names like Lucky, Uncle Festivas and Out Too Soon.
> 
> There used to be a band called Fun Boy 3. The most miserable band ever.




I'm neutral - just reporting the facts that can affect the party continuing. Good data looks after itself eg millions of bulls, it's the bad stuff you have to be aware of  . Nothing wrong with a balanced discussion - like there isn't a majority of bullish threads!
Sky falling in? some people still have their heads in the clouds.


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## chops_a_must (1 May 2007)

constable said:


> too many bears and not enough bear traps!
> isnt there enough "sky falling in" threads already??




Oooofff. Don't say that! You'll get an infraction like I did.

And Kiwi, although we have a "Lassez-faire" dominant ideology worldwide currently again, I thought that a big reason for the 1929 crash was protectionist and isolationist policy. Something that has been removed throughtout economies over the last 30-40 years. And the fact remains, no market (apart from maybe the Chinese and Indian) are going parabolic. So we are likely to get corrections, not crashes, until such time as this occurs IMO.


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## The Mint Man (1 May 2007)

Past performance is no indicator of future performance!!!


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## petervan (1 May 2007)

History repeats itself.But in my humble opinion not a 29 crash but maybe a correction.


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## tech/a (1 May 2007)

I'm with you constable.

Who cares.

Trade whatever is given to you.
*Quantify risk anyway you like and take the action which you deem as appropriate.*

But for Gods sake dont be crippled by "What ifs".
Dont be influenced by opinion---thats all it is.

Well---in my opinion---


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## macca (1 May 2007)

Some differences in todays world compared to 1929 are that the financial world is far more diverse.

Back then Gold and Silver prices were fixed and the only strong currencies were the GBP and the USD.

Now we have floating value and easy availability for investments in Gold and Silver, we also have the Euro as well as the GBP and the USD.

Japanese Yen has great financial strength as well.

We could still have a sharp downturn or more likely a plateau where the world wallows along for 5 -10 years, but I really can't see a world wide disaster like 1929 anytime soon.


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## wayneL (1 May 2007)

Uncle Festivus said:


> I'm neutral - just reporting the facts that can affect the party continuing. Good data looks after itself eg millions of bulls, it's the bad stuff you have to be aware of  . Nothing wrong with a balanced discussion - like there isn't a majority of bullish threads!
> Sky falling in? some people still have their heads in the clouds.



Exactly.

The usual suspects indulge in baseless sledging. Pick up the standard of debate guys. Countering points are appreciated. Schoolboy behaviour only degrades the debate.


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## wayneL (1 May 2007)

chops_a_must said:


> Oooofff. Don't say that! You'll get an infraction like I did.



Point of order:

The infraction was not for that reason.


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## wayneL (1 May 2007)

In the spirit of rational debate, here is a post from Ritholtz yesterday... something for the bulls and the bears. Made a lot of sense to me.

http://feeds.feedburner.com/~r/TheBigPicture/~3/113109476/bubbles_everywh.html



> CNBC Appearance: Bubbles Everywhere ?!
> from The Big Picture by ritholtz
> 
> As we mentioned this weekend, I will be on CNBC this morning at 11:03 am discussing a bubblicious concept -- that the entire world is now bubble -- a situation likely to eventually get out of hand.
> ...


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## Knobby22 (1 May 2007)

11. Of course the tricky bit, as always, is timing. Most bubbles, like internet stocks and Japanese land, go through an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right.

And that is the point. We have yet to go through the exponential phase, so medium term (1 to 3 years) I am a bull, long term I am a bear.

The high liquidity of money has to cause inflation, this will cause interest rate rises, however so far the central bankers have been very effective. The sky will not fall in just yet.


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## chops_a_must (1 May 2007)




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## Knobby22 (1 May 2007)

wayneL said:


> In the spirit of rational debate, here is a post from Ritholtz yesterday... something for the bulls and the bears. Made a lot of sense to me.
> 
> http://feeds.feedburner.com/~r/TheBigPicture/~3/113109476/bubbles_everywh.html






This is a bit off centre but could it be that we are already experiencing inflation, but in a different form? The effect of inflation is that costs rise, 
...well property has risen
commodities have risen
yet due to China, manufactured goods have not.
Could it be that the central banks defination of inflation is too narrow and we are in the first stage of a massive inflation rise???

New paradigm stuff?


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## wayneL (1 May 2007)

Knobby22 said:


> 11. Of course the tricky bit, as always, is timing. Most bubbles, like internet stocks and Japanese land, go through an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right.
> 
> And that is the point. We have yet to go through the exponential phase, so medium term (1 to 3 years) I am a bull, long term I am a bear.
> 
> The high liquidity of money has to cause inflation, this will cause interest rate rises, however so far the central bankers have been very effective. The sky will not fall in just yet.



This is where I have to agree with bulls. Liquidity IS incredibly high, credit unbelievably loose. Credit providers are literally throwing money at people, still.

I also believe perceptions are are being managed very effectively. Joe Sixpack has no idea of the structural problems in the system, he's only interested in how much his pile of bricks is worth and how much he can MEW out of it. Employment and inflation statistics are little better than fraud, particularly overseas.

The x factor is housing IMO. The anglo/celtic economies are now heholden to strong HP inflation and building. Any slump there takes out the whole economy. There are also other wild cards out there, oil being one, geopolitical tensions (somewhat related to oil) being another.

Housing problems are happening in the US right now, but it takes time for the effects to work through. It won't be a sudden crash and Gu'mints and CBs will be desperate to prop it up. It take years to play out.

IMO


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## greggy (1 May 2007)

Knobby22 said:


> 11. Of course the tricky bit, as always, is timing. Most bubbles, like internet stocks and Japanese land, go through an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right.
> 
> And that is the point. We have yet to go through the exponential phase, so medium term (1 to 3 years) I am a bull, long term I am a bear.
> 
> The high liquidity of money has to cause inflation, this will cause interest rate rises, however so far the central bankers have been very effective. The sky will not fall in just yet.



Hi Knobby22,

I tend to agree with you.  I still think the Australian market will reach 7,000 points at one stage this year.  Some people are starting to panic again like they did a few months ago.  Remember people saying sell all uranium stocks. Well since then a number of them have recovered strongly and moved on to greater heights. I used that opportunity to pick up a few good buying opportunities.  I don't think we've reached the stage yet where we're headed for a crash.  Even Alan Kohler, a well respected financial commentator, has recently said that this bull is far from over. Sure this boom will end sometime, but its not yet frothy enough IMO.  When it does it could well be a very nasty bear market.
DYOR


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## wayneL (1 May 2007)

chops_a_must said:


>


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## Kimosabi (1 May 2007)

Is it just me, or is it that every time the market goes down these threads pop up?


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## Uncle Festivus (1 May 2007)

Knobby22 said:


> And that is the point. We have yet to go through the exponential phase, so medium term (1 to 3 years) I am a bull, long term I am a bear.




Just curious, why do we have to have an exponential phase? Is this the main reason you are bullish?

Hey Chops, cheer up mate, try not to be so pessimistic  

Here are a couple of exponentials for starters.


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## constable (1 May 2007)

"anyone who bought stocks in mid 1929 and held onto them saw most of his adult life pass by before getting back to even"
Richard M Salsman.
Wow...now can anyone seriously argue that this is going to happen again? 
Lots of easy money yep sure there is .... overvalued stocks not even close to what happened in 1929 .(except u stocks  )


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## constable (1 May 2007)

Uncle Festivus said:


> Just curious, why do we have to have an exponential phase? Is this the main reason you are bullish?
> 
> Hey Chops, cheer up mate, try not to be so pessimistic
> 
> Here are a couple of exponentials for starters.




I'd be interested in the difference in pop size over that 50 years uncle!


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## wayneL (1 May 2007)

FYI

The above Grantham - Ritholtz discussion on BubbleVision.

http://www.cnbc.com/id/15840232?video=275933010


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## Kimosabi (1 May 2007)

hello,

another solid performance on stocks this week. those who say it is flat or crashing are absolutely dreaming, buy quality stocks.

went to ASX on Monday, could not believe the number of people interested

gee another week gone, appears nothing changed in the stock market

got anymore stories for the weekend

is it buying time yet, got the piggy bank ready

thankyou

kimborobosabibots


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## Uncle Festivus (1 May 2007)

Knobby22 said:


> This is a bit off centre but could it be that we are already experiencing inflation, but in a different form? The effect of inflation is that costs rise,
> ...well property has risen
> commodities have risen
> yet due to China, manufactured goods have not.
> ...




Real inflation, the monetary type, is largely invisible to the average persons daily life, who all the while have the illusion that they are getting wealthier. 

"Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."


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## wayneL (1 May 2007)

Uncle Festivus said:


> Real inflation, the monetary type, is largely invisible to the average persons daily life, who all the while have the illusion that they are getting wealthier.
> 
> "Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."



Also, bear in mind that the "Dow" is weighted by Price, whereas other indices are weighted by capitalization.

Price is not a very good ay to weight an indice and is a relic of the days before calculators even.

The more appropriately weight indices such as SP500 and Naz, are not yet at new highs.

The "record" highs of the Dow are essentially meaningless. Have a look at the 30 constituent charts to illustrate this point.


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## Knobby22 (1 May 2007)

Uncle Festivus said:


> Just curious, why do we have to have an exponential phase? Is this the main reason you are bullish?




Those curves aren't adjusted.

Look at 1929, 1987 etc. there is a giant exponential rise in the stock market before the crash. Everyone is making so much money that they are scared to get out. hasn't happened yet. Stock prices do not look very over valued at  present.


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## Lucky (1 May 2007)

Knobby22 said:


> I think its funny that many of the uber bears have bullish names like Lucky, Uncle Festivas and Out Too Soon.
> 
> There used to be a band called Fun Boy 3. The most miserable band ever.




Hey knooby what makes you think I'm an uber-bear.  I'm no more a uber-bear than you're a uber-bull(actually I have no idea where you stand on the market, i've not read any of your posts before so i can't make that judgment call).  I've just posted an article that I thought would make for interesting discussion.  I know there's many bears/bulls on the board, but I think anyone who trades the market just does that, regardless of bearish/bullish sentiments and opinions written up and reported in articles.  I've seen some crazy calls in the last couple of months people that have bet the house thinking the markets are going to crash only to be sorely disappointed and nursing serious wounds to their wealth.  I've know a couple of guys who have all but wiped themselves out in recent months, adamant that they're on the right side of the trade and that their way of thinking is correct and so wanting to be right.  Brutal, but that's the market for you.  It doesn't take a rocket scientist to see that the overwhelming trend has been up.  

If what is outlined in this articles pans out, what difference will this make to you?  Will it make any difference to you?  A good trader with a good system will make money in rising and falling markets it won't make any difference to them what is reported or what articles are published/written.   

If it makes you happy i'll see if i can find an article for the bulls - bring some optimism and po,sitivity to the forum  

A little O.T, but lets see - real estate.  I believe RE seems to be a pretty interesting topic that gets quite a passionate debate here on the forums.  House prices are still going bananas here in Melbourne record prices being set in a few surrounding suburbs.  A 2 bed terrace in Northcote was sold for a record $707k (can't seem to find the link) on the weekend.  The house next door to my sisters place in St.Kilda East went for $808k - a 3/4 bedroom weatherboard house in need of renovation.  it's going very well for some folk.

best


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## alankew (1 May 2007)

Apologies for asking what may be a silly question but been out all day and come back to find most of my stocks down,any particular reason.Thanks in advance


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## bean (1 May 2007)

1929 and 1987 crashes occured in October
If this one crashes on say the 8th May 
That would be different


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## chicken (1 May 2007)

bean said:


> 1929 and 1987 crashes occured in October
> If this one crashes on say the 8th May
> That would be different



You are all talking about crashes....like 1929...or 1987....the 1987 was manipulated by the Germans and the USA...the 1929 ...those were different times than now...China will become the powerhouse of the future..with its 1.4billion population...the USA are the largest debtor in the world...yes these are funny times again....but a total collaps???? I would say in 30years time but at present a market correction..PERHAPS...but as long as China..and India aregrowing as they do and needing rawmaterials to supply their goods to the world...and the world consumes the crashes will be relatively light and business carries on....as long asthe wheels of commerce are turning...I say what crashes...just a small correction...


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## wayneL (1 May 2007)

http://esl.about.com/od/englishgrammar/a/a_punctuation.htm


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## constable (1 May 2007)

And now its an english lesson for the bird!


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## Knobby22 (1 May 2007)

Lucky said:


> Hey knooby what makes you think I'm an uber-bear.  I'm no more a uber-bear than you're a uber-bull(actually I have no idea where you stand on the market, i've not read any of your posts before so i can't make that judgment call).
> 
> A little O.T, but lets see - real estate.  I believe RE seems to be a pretty interesting topic that gets quite a passionate debate here on the forums.  House prices are still going bananas here in Melbourne record prices being set in a few surrounding suburbs.  A 2 bed terrace in Northcote was sold for a record $707k (can't seem to find the link) on the weekend.  The house next door to my sisters place in St.Kilda East went for $808k - a 3/4 bedroom weatherboard house in need of renovation.  it's going very well for some folk.
> 
> best




Yea, sorry for the bear judgement, it was the article. You can't blame me for making the assumption.
And you are right about property in Melbourne. It is nuts and we will be catching up to Sydney if we are not careful.


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## Knobby22 (1 May 2007)

Uncle Festivus said:


> Real inflation, the monetary type, is largely invisible to the average persons daily life, who all the while have the illusion that they are getting wealthier.
> 
> "Despite its recent eclipse of 13,000 the Dow now buys 30% fewer euros than it did then back in 2000 when it was priced at approximately 11,500. It also buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium. Try figuring what the Dow will buy in terms of other necessities, such as housing, insurance, college tuition or hospitalization. Any way you measure it, the Dow is worth far less today then it was in January of 2000."




Interesting, they are in effect experiencing massive inflation though it does not show officially. But our currency is going up so we should be getting deflation, however the money we have made is being used to fuel the housing boom.


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## Lucky (2 May 2007)

Knobby22 said:


> Yea, sorry for the bear judgement, it was the article. You can't blame me for making the assumption.
> And you are right about property in Melbourne. It is nuts and we will be catching up to Sydney if we are not careful.




Hey no worries.  It's a fair call.  The title says it all really, it's pretty easy to read, " Too much like 1929" and make a call on that.  When I hear or read 1929 the things that immediately come to mind are crashes and the great depression(what was so great about it anyway  ), besides the model-t, the speakeasy, the charleston and jazz :  

Funny you mention catching up to Sydney RE prices, we're probably not too far off it, but what's really funny is that median RE prices here in Melbourne, we're only ranked 5th in Oz.  Median RE prices are higher in Perth, Canberra and Darwin - Melbourne we've got some work to do!


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## KIWIKARLOS (2 May 2007)

Hey Uncle Fest

The fact that the US dollar dropping is a good thing for the US.

As there Dollar decreases so does the value of all the US cash reserves of every country in the world that uses them to buy oil which is really only traded in US dollars. 

In effect the effect of A failing US dollar , increasing oil prices and inflation in America is pretty much a world tax for America. The only way i can see the American economy collapsing is if the US dollar loses its dominance as the world currency for buying Oil.

Hence Iran and the Euro Boarse and why George Bush has gone to Iraq to ensure that saddam didn't do the same (which he was planning before the invasion)


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## explod (11 August 2007)

With markets everywhere looking like they may fall off the cliff I felt the 1929 thread well worth a revisit at this time as it contains a great deal of backgound that may be beneficial to our newer members.


Cheers explod


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## kerosam (11 August 2007)

i think the world markets are very shaky... sensitive to any possible bear-ish news... either another major terrorist attack, a natural disaster or outbreak of a disease etc can really turn it really bad.



off to check how DOW is doing.


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## billhill (11 August 2007)

I stumbled on this just now and having read the previous posts on this thread thought it was relevent to the increases in asset prices preceding a big bust.

Not related to 1929 but probably the closest event to occur since in the japanese asset bubble and subsequent deflation.

Pretty eye opening when you consider we're now higher then japan ever got.

Sorry guys I don't know how to shrink the image.


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## vishalt (11 August 2007)

wow really.. 

the market goes down, suddenly everyone is out of the closet and saying its the end

the dow and s&p 11,000 to 14,000, and 4800-6500 respectively in 52 weeks, the markets go down too you know D:


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## Smurf1976 (11 August 2007)

I don't have a link but there are plenty of rumors circulating about one or more European banks literally going broke. I'll post a link if I can find something credible.

I tend to believe there's a problem given that central banks seem to be involved in a bailout of some sort according to various mainstream media reports.

Also, we seem to be hearing of more problems practically every day now. That's not a good sign...


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## vishalt (11 August 2007)

yeah the euro banks are crippling on their double digit growth :O


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