It's been a little over year since the All Ordinaries hit its highest point of 6873 on 1 November 2007. On Friday 21 November 2008 it hit a low of 3201 – a fall of 53 percent.
Chart 1 shows the All Ordinaries (the main index for the Australian Sharemarket XAO.ax) in the last 18 months. The earliest and strongest signal that we were entering a bear market was back in January 2008. Since January, the market has tried to find a bottom. After falling, only 2 possible outcomes are possible - i) pause and go sideways ii) Go UP. On each occasion, the XAO paused, then broke support (the green cross), in the search for a new bottom. A bottom has still not been made!
Chart 1: All Ords in last 18 months
As the following chart 2 shows the current financial bear market is rivaling the 1929 crash in speed and depth, so far. With the 1929 crash, heavy losses came straight away, whereas the current bear market had a small correction before it started in August 2007, then a decent crash in Dec-January 2008, then in July-August-September. If we are to follow 1929 from here, there is still some pain to come before the bottom. The current bear market is already worse then the early 1970s (first oil shock) and the Dot Com crash.
Chart 2: Alan Kohler, ABC News 24 Nov 2008
* Note however, that after the initial crash in 1929, from November to January of 1930 the US sharemarket rebounded some 50%, before resuming its major bear market. December-January periods tend to be good months for the sharemarket historically, but not always so (like last Dec-Jan).Chart 3: in The Financial Review 24 Nov 2008
Chart 3 compares all the bear markets in the 1900s showing the mean percent decline and magnitude (over days). This chart shows that it is comparitable with 1901, 1906, 1919, 1937, and 1973 - but the duration of the current bear market is much much shorter to reach this decline. Only 1929 stands out. Could the ultimate bottom be somewhere near 1929...? and in what time frame?Comparing the meltdown in terms of Gold and Silver
In the last year the All Ords has gone down some 53 percent measured in terms of Australian Dollars (the stock are measured in $AUD p/share). When you measure the All Ords in terms of gold or silver though(or any other commodity such as wheat, oil or other tangable no-liability (no debt) asset), you will see that the sharemarket has been crashing for several years, going back to the Dot com days. In 1999, 1 point of the Dow Jones could buy you 45 ounces of gold. Today 1 point of the Dow Jones can buy you around 9.5 ounces of gold. In these terms, the Dow has crashed by over 72 percent so far. A similar picture is happening to the housing market in the US (and in Australia), which I will touch on in a future post.
To measure the All Ords, I merely used historical year end gold/silver data (in tons) with year end All Ords data. The charts speak for themselves.
The unique qualities of gold and silver is that it accounts for all the debt and money created throughout time. When sharemarkets, real estate and credit markets bubble, people flock to undervalued gold and silver.
Chart 4: Gold vs All Ords
Notice in the 1970s and early 1980s, gold quickly fell to its overvalued region. Then the sharemarket became undervalued. The All Ords peaked in 1999 (same as Dow Jones) in terms of gold.Chart 5: Silver vs All Ords
Like gold, silver did the monetary accounting in the 1970s and early 1980s, however today is a very different picture. Silver is extremely out whack and very undervalued compared to gold in Chart 4. The All Ords looks very expensive in terms of silver. Eventually gold and silver will go back to the expensive levels at the bottom of the charts - but there is some way to go yet!
More good stories to come on gold (and particularly) silver...
Commonwealth Bank now has larger market capitalisation than Citibank
Last Friday, as one market commentator pointed out, with the falling shareprice of Citibank below US$5 per share, the market capitalisation of the Commonwealth Bank (CBA.ax) is now larger then Citibank, once one of the world's largest banks, and still huge in terms of Tier 1 capital and revenue.
Shareholders are now betting the bank will be bailed out by the US Government and that equity holders would be wiped out. As I write this, there are news clips coming out saying the US Government will guarantee close to $US300 billion ($475.3 billion) of Citigroup's assets with an additional an additional $US20 billion in capital to help it stay alive (for now). **insert more fuel to the world economic fire**
Still to come: Housing bubble in Australia, and my thoughts on Obama's Presidential win (in an world economic/monetary viewpoint).
Cheers,
Scott
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