Friday, December 12, 2008

The Ghost Of Christmas Past - Circa 1990

I have been comparing the 1990-1991 Savings & Loan bear market as a navigation tool through the current bear. It isn't a perfect parallel, but the fact that it was driven by a severe banking crisis holds relevance to today. Think of it as a fender bender bear. The market we are currently experiencing is the highway collision bear. The dynamics and reflexes are similar, the severity of the collateral damage is worlds apart. The first two charts are of the two bear "financial accidents". Although the magnitudes of the declines are standard deviations away from one another, the trends are very similar. For clarity, you can see that the 1990 Bear carved out three separate lows over the fall crash cycle. The 1990 bear crash/liquidation cycle started almost two months earlier than the current crisis. Setting them on the same timeline, we will experience a third low next week or soon thereafter. To sound like a broken record, I have been following the gold/silver ratio as a barometer of risk appetite in this financial crisis. To further simplify, I have removed silver from the ratio and replaced it with the SPX. I then compared the two financial crises in this ratio. They trend with stunning similarity. You be the judge.

1 comment:

Henry Bee said...

Just discovered your blog yesterday. Today's post is high quality stuff. I've also noticed that by pricing gold with a whole series of other assets, it appears to be overvalued in all of them.

Take a look at gold/copper, gold/platinum, gold/oil, and you'll see what I mean. I believe this is signaling a really bad world economy, but one that is long in the tooth already.