Surviving A Global Depression

A Chinese curse states: “may you live in interesting times” and the times ahead could definitely be interesting. However, no one knows exactly how interesting. It is impossible to gauge today how hard the recession / depression is going to hit. It may be widespread but very mild, or it may be localized to a particular geographical area. In the other extreme it could ravage every country in the world impoverishing hundreds of millions of people.

The true “bottom line” is that the global economy has developed significantly from the last major worldwide depression almost a century ago, thus very little guidance can be derived from history. No one today can truly and thorougly comprehend how an interconnected speed-of-light global economy will fare under worldwide depression conditions. In such an unprecedented global catastrophe, the best computer models are inadequate and the most insightful Wall Street guru’s opinion is barely worth more than anyone else’s so these recommendations are best taken with a grain of salt.

Stock and bond prices go up and down every minute of every day to reflect the perception of how well a company is doing. In actual fact, there seems to be no precise correlation between real tangible asset values and valuations based on market sentiment. That’s why a company like Siemens that is the world's largest non-automotive manufacturing corporation which owns dozens of multibillion-dollar plants all over the world, has hundreds of thousands of employees, and has indisputable tangible worth, has a lower overall value on the stock market than a company like Google that effectively is nothing more than an ethereal website that points to other websites. So irrational is this system that the current market value of Google is almost three times that of Siemens.

Remember the various booms such as the “dot com” bubble where millionaires were being made overnight? The Dow Jones Industrial Average, the world’s leading index, was rising like a helium balloon. Some financial soothsayers were predicting 20,000, 30,000 or even six-figure levels in the near future. Then came the subprime shock which made the Dow Jones flatline at around 8,000 and it hasn’t budged significantly since.

How would the Dow, FTSE, All Ordinaries and other indexes react to a true worldwide catastrophe? Most analysts look back to 1929 to determine the structure of a market crash, but so much has changed since that time that it is an unreliable model. There is no hard and fast forecast for what could happen during a modern global depression.

Therefore, the best way to analyze this situation is to envision three separate scenarios:

  • Low: Dow Jones at 6,000.
  • Medium: Dow Jones at 2,000.
  • High: Stock Markets Closed.

Now, let’s look at how the stock markets would react to the Low and Medium scenarios to show how various equities would perform in these situations. The High scenario is too apocalyptically devastating to consider at this juncture as there won't even be a stock market at that level... or commerce and business in any form. Let's deal with Low and Medium first... leave High for later.

Next: Surviving A Global Depression - Stock Markets

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Comments 10 comments

born to be free profile image

born to be free 7 years ago

Excellent work on all the Hubs published today Hal.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

Thanks! Much appreciated! Now let's all pray that this never comes to be!


quicksand profile image

quicksand 7 years ago

Since economists cannot find a solution, prayer seems to be the best option. :)


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

I doubt that it is within the power of any economist or any human being to find the solution to woes of this incalculable magnitude. Only a deity can offer hope.


Neil Sperling profile image

Neil Sperling 7 years ago from Port Dover Ontario Canada

Great hub -- the only thing constant in the universe is change - I guess we will see what the next change brings!


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

It might bring deerskins and flints, but that life has its charms too!


Brad Rubenz 7 years ago

Great Hub and we are rapidly approaching the 6k mark in the market. I'm still marveling myself at people that are investing in Gold Bonds. Might as well by shares of BoA or US Treasuries for that matter.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

When I wrote this Hub the Dow was about a thousand points higher than it is now. It plunged into the 7200s on Friday and the Good Lord only knows what its going to do this upcoming week with the auto manufacturers demanding ever larger bailouts with no expectation in sight that they are going to turn a profit for a decade if ever. We may be in big trouble even faster than I had imagined. I'll state it for the record: Anyone who invests one penny in a paper ANYTHING today is a fool. And you know what they say about a fool and his money!


debris profile image

debris 7 years ago from Florida

Hal,

I agree, it is a grave mistake to reference the great depression as the model to stand by. A large portion of the variables are completely different from then. I get frustrated when I see all of the talking heads telling people what to do with their money, because in all honesty, their choices aren't based off much more analysis then a basic glance at the company history and today's headlines. How can Cramer jump on the TV and have a new set of BUY BUY BUYS every night? He cherry picks really quickly and sleeps well at night knowing there is a disclaimer on the show telling people not to listen to him.

That is how all of the talking heads absolve themselves of any guilt. I couldn't possibly tell people what to do with their money in this economy, I can't gamble with people's futures.

-Debris


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

I did gain a lot of respect for Jon Stewart when he BBQd Cramer, and deservedly so. People have NO IDEA that this is all show biz. It's entertainment! Mad Money is meant to be taken as seriously as Smallville. Do you really expect to put on a cape and fly out the window? Well... do you really expect some maniac jumping up and down to inform you on how to invest? Sheesh! I loved Cramer's take on AMD at $35. It was MAD MONEY. BUY BUY BUY! I'm sure that a lot of investors who took him up on it were just thrilled when it hit $1.60 a few months ago. :)

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