An Economic Depression is defined by a Recession lasting more than 2 years. I believe we are heading into a Depression this year, consisting of a stronger recessionary period than that of 2008-09, but less painful than that of the Great Depression of 1929 - rationale below:
Just as the Great Depression, we are closing out the Long-term Debt Cycle, which ends every 60-75 years. This current cycle started in 1945 after WW2 and is now drawing to its close. Back in 1929, the FED extorted the same mechanisms that it is doing today in order to try and stem the Economic Collapse from occurring - monetization of debt spending, lowering of interest rates, etc. etc. These tools do soften the blow of a downturn, but however will extend the recovery time to positive growth. Currently, we have all the same ingredients as we did back in 1929 that is causing this to happen: High Unemployment, Massive Corp & Consumer Debt, Oil Crashing, & a incredibly long economic expansion ending into a market crash. All these factors combined turn a Recession into a Depression.
Covid-19 is not the main reason we are heading into a long recessionary state, but is more like the needle that popped the Debt Bubble that we are currently in. Even if the virus disappeared tomorrow and a vaccine was miraculously discovered & distributed, the damage from the debt bubble has already been done, Covid-19 was just the catalyst to open the show.
Now some things are different today than they were back in the 30s, everything moves twice as fast. As you can see from my chart, I believe that the market will move 2x the speed as it did back in the 30's, and that would also include the recovery. Note, when it took roughly 25 months to reach the bottom of the market during the Great Depression, in 2020 I believe we will get there in about 1 year's time. I also think that the bottom of the S&P will not be as bad as it was back in 30s, which was about 17% of the 1929 high; I think the max bottom will be around S&P 1200, or about 35% of the 2020 S&P High. It is very likely to be higher than that as many analysts think it won't go below 1500, which is quite reasonable as the Global Economy is much different than that of the 1930s.
So, to finish, I would like to just state that these are my forward-looking economic thoughts and in no way am I a PermaBear, in fact, I much rather be a Bull and dislike recessions altogether. However, I am a realist when it comes to the economy, as it is part of my professional background.. Thanks, and trade well.
What would cause the market to drop? There needs to be an unseen catalyst like in march. Otherwise, this market is going up until that black swan occurs
jpreal1
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@rodrumble, PEG alone will cause it to drop. Think longer term.
elvis0288
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keep hearing that and it keeps going up
jpreal1
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@elvis0288, What exactly are you hearing? Remember this is not a post about Technical Trading, but about the market in more Macro-Economical driven sense.
ChristianSennesvik
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@elvis0288, no it dosen't - check the chart, DJI, S&P and Russel2000 haven't been able for almost 2 weeks to surpass April 29.-30. highs. Only one that has gone up is Nasdaq helped by a few tech companies.
ryannisbet1
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One major difference is that we were on the gold standard in the Great Depression. QE (Printing Money) helps.
jpreal1
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@ryannisbet1, Yes agreed. Which is a major reason why we will move 2x the speed on the fall & recovery. Thanks for the comment.
BuckiTrader
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@jpreal1, Doubt it. The Fed is in complete control and shorts are getting burned up repeatedly.
BuckiTrader
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How long is it okay to be wrong for before admitting it and getting on the right side of the trade? Just wondering. ;)