The Serious Parallel between 1929 and Today
Monday, July 16th, 2007
By Michael Lombardi, MBA for Profit Confidential
While I may be the only financial commentator studying the similarities between the economy of the late 1920s and the present, the striking parallel I find between the two time periods is something I find a personal duty to share with my loyal readers.
Back in 1927, the property market in the U.S. started to fall apart. Real estate prices started to fall in America in and about 1927. Consumers who had purchased homes at relatively high prices of the era started to witness a fall in their home values. As home prices fell, so did speculation in the real estate market and the demand for houses.
We face a very similar situation today, 80 years later. 2007 will likely be the first year since the Great Depression that the median selling price of a home in the U.S. will fall. We are actually worse off now than in 1927 as the collapsing subprime loan market and re-setting of billions of dollars in ARMs (which did not exist in 1927) are pushing home foreclosures in the U.S. up sharply.
And even though the U.S. housing market was coming apart in 1927, the stock market continued to rally higher and higher. We face the same situation today. (Witness the Dow Jones Industrial Averages outstanding 283-point single day run-up on July 12.) While the housing market comes unraveled, Wall Street continues to plow ahead.
The same thing happened in 1927. Housing prices then were falling but the stock market kept moving higher. It was not until 1929 that the first stock market crash (one that preceded the Great Depression) came. If I had to bet my money, my bet would be that we will see the same thing again: The stock market here won’t go down until 2009, two years after the housing market’s hard landing.
The good news: If you are a stock market investor, you can expect stock prices in the U.S. to continue rising for the next two years. After that, the American housing and property market will be in such a mess that the tight purse strings of American consumers will hit the stock market like a brick wall.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
