Does 2014 Equal 1937??

Does 2014 Equal 1937 ?  

I thought I share an article on some similarities between 1937 and today.

In 1929 the market had probably the most famous crash in its history and fell nearly 89 percent till its 1932 bottom.

When Roosevelt was elected he underwent some major changes to stimulate the economy. He closed bad banks, devalued the dollar and started a massive expansion of the federal government with government spending more than doubling from 1933 to 1936. The stock market soared from a low of 41.22 on the Dow in 1933 to nearly 200 in 1937. The problem was it was an artificial rally held up by government stimulus.

In 1937 when the stimulus was taken away the market began a huge drop falling from nearly 200 to under 100 by the spring of 1938.

Why is This Important?

I think it is important because that market rally came out of a financial crisis and had government stimulus to keep it going.   In 2008 and 2009 we had a bank bailout and fiscal stimulus.

Since that time the Fed has increased its balance sheet by nearly $4 trillion.   If you look at the markets you will see that ever since the Fed announced it would expand its QE program to $85 billion back in November 2012 you will see that is when the bubble sectors began their straight up ascent.

This like 1937 this has been a liquidity driven bull market driven by the authorities. Now just like 1937 the authorities are taking away the stimulus.    The consensus seems to be that these momentum sectors can decline and the rest of the market will be fine.

However, we must remember that in 2000 when the Dot coms began to bust the rest of the market held up fine until the fall of 2000.  However, as these were the leaders of the market and at some point they will take the market down with it.

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