GREAT DEPRESSION? STOCKS DID NOT REGAIN 1929 HIGHS UNTIL 1954!

Recession or not, investing in the Dow Jones Industrial Average (DJIA) over the last ten years suggests stagnation at best, with returns unable to beat historically low cash yields and produced solely by dividends. The market value of these blue chip companies has not risen even one per cent in a decade.

Are there similarities that suggest we are entering a second Great Depression? The causes of the first might provide a clue, if economists could only agree what they were. The two most commonly accepted are: rapid expansion of debt in the 1920s, or the requirement for banks to match debt against gold reserves, creating a credit crunch with no real connection to the economy.

If the latter is correct, we may be OK. If the first theory is correct, then we should start to worry! Debt compared to gross income is many times higher today.

The stock market movement since 2000 has been far more comforting. Following a 36 per cent drop, previous highs have since been surpassed although a 20 per cent fall followed. The drop after 1929 ended only when values had declined by 89 per cent, and it was 35 years before the 1929 highs were exceeded.

You might suppose that a 35-year recovery period is unthinkable in modern times. Think again. Japan is about to enter its twentieth year of recovery and its main index still stands at less than one-third of its 1989 high.

Diet is another factor, and this is good news at present. To my knowledge, a dish comprising potato, powdered egg whites and a pinch of cocoa is not being regularly served as a dessert on American tables as yet.

The catalyst for the end of the Great Depression is generally agreed to be World War II. If that is the price, I'd prefer depression.

Our October forums will be presented in English by Stephen Gollop (CEO) and Martin Hennecke (Investment Committee Chairman) and we'll be focusing on three areas: comparing the two periods; taking a look at the 12 months since last October, which has seen incredible volatility and started with stock market falling, then investor confidence breaking resulting in losses spreading to almost every asset class; and statistics and their use in producing false doom and false confidence.

Our forums are often oversubscribed, so please register early for you and your friends to avoid disappointment.

Please register in any of the following ways: phone (852) 2525 3639; fax (852) 2525 3679; or e-mail forum@tyche-group.com

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NEWSLETTER - "Market Truth"

Tyche publishes a periodical called 'Market Truth'. This provides valuable insights into local and global markets and indicates investment opportunities. Tyche bases these insights on their 'House View' of the financial markets.

Each month there is an investment theme that will help investors identify investment opportunities and make sound decisions. To obtain access to our newsletter archives and receive this periodical, simply register on-line and we will post you a monthly copy.

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