ckwong wrote: There is some similarity between the Depression and current situation.
- World production dramatic reduced, i.e. PMI well below 50 and into the 30. Today is caused by the COVID-19 lock down.
- The world shifts from globalization to localization. In the 1920’s America was the world manufacturer. Now China is the world manufacturer. The weakness of globalization to reduce production cost (not price) creates a point of weakness in supply chain.
The event started quick and people was optimistic that it would not last long. It may be or may not be. This is butterfly effect that will be hard to predict. The symptom is spending reduction. Today we cannot spend physically but we do have the cyber world that continues to provide service.
From the investment perspective, the market during the Depression is depict in the following two Dow Jones charts. The first is the monthly close chart. The other is the peak and value and volume chart.
You can see that the index rose from around 250 to 375 which is 50% gain. Similar to what we have today rising from 20,000 to close 30,000. Then it was followed by the first drop below the beginning of the rally. We did have DJIA fell below 18,000 at the end of March. Then rally up 50% before the long lower low descend until 40. Hope this will not happen.
Should you plan for the worst, this is what you need to plan for.
The tricky one is that, the rally from November 1929 to April 1930 was 52% from the low which is very convincing and enticed people entering the market. There was bottom buy high volume to convince the technical.
In reality, retrospectively, the recover did not start until volume was much lower. An indicator that reflects the market trend was the On Balance Volume (OBV) which is the green line. The OBV is not 100% accurate. The last leg down was 50% for a period of 5 years while the OBV stayed high.
The following is the table showing the percentage of loss and gain and the duration in months.
| Begin | End | Months | From | To | Change | % | Total Volume | Average Volume | Peak Volume |
| 31-Oct-28 | 30-Sep-29 | 11 | 233.6 | 386.1 | 152.5 | 65.30% | 947,050,000 | 86,095,455 | 91,150,000 |
| 30-Sep-29 | 27-Nov-29 | 2 | 386.1 | 195.35 | -190.75 | -49.40% | 207,380,000 | 103,690,000 | 73,730,000 |
| 27-Nov-29 | 30-Apr-30 | 5 | 195.35 | 297.25 | 101.9 | 52.20% | 385,140,000 | 77,028,000 | 104,070,000 |
| 30-Apr-30 | 29-Jul-32 | 27 | 297.25 | 40.56 | -256.69 | -86.40% | 1,134,090,000 | 42,003,333 | 21,210,000 |
| 29-Jul-32 | 31-Mar-37 | 56 | 40.56 | 195.59 | 155.03 | 382.20% | 2,038,240,000 | 36,397,143 | 46,240,000 |
| 31-Mar-37 | 30-Apr-42 | 61 | 195.59 | 92.69 | -102.9 | -52.60% | 1,108,690,000 | 18,175,246 | 6,950,000 |
| 30-Apr-42 | 31-Dec-42 | 8 | 92.69 | 120.19 | 27.5 | 29.70% | 81,290,000 | 10,161,250 | 17,990,000 |
The Spanish flu from 1919 did not caused the Great Depression. But the combination of COVID-19 and the intention to kill shale oil (i.e. killing American oil industry) is the main effect black swans. The collapse of American shale oil will definitely have a significant effect to world demand.