In the history of the capitalistic era, there have been tremendous stock market collapses. From the tulip mania in 1633-1637, to the recent European debt crisis.
Bubble after bubble and crash after crash.
From all the big bear markets in history, some of the recent years are among the worst.
Worst bear markets in history
It seemed difficult that in the absence of war, the great bear market of the US in 1929 (90% fall) could be surpassed. For the Americans, that bear market is still the bogeyman, and the majority think that it will not be repeated. Though let´s see what happens next years.
Before the Nasdaq collapse of the 2000, we had some of the most memorable bear markets in history in the Asian crisis of 1997. In that occasion, the Asian emerging countries suffered tremendous losses. South Korean market lost 75%; Indonesia more than 60%; Thailand more than 80%; and also Malaysia.
Those markets, however, did not take too much time to recover.
Japan secular bear market
They did not pay the price of Japan´s “Lost Decade”, which in reality will be three lost decades soon. In what is one of the worst secular bear markets in size and duration of all time. It is still 50% below its 1989 top. Buy and hold do not really work here.
But, the worst bear markets in history are those that we have seen (and will be seeing for a while yet) in the last 15 years after the Nasdaq and housing market collapses.
Next bubble: that of public debt is the next in the list. We will see where the market goes when that one bursts.
We have already some good examples of vicious bear markets in this still going crisis and that may serve us as a guide for the likely future bear markets of some developed countries.
Those cases are probably the worst bear markets in history, apart from those when a communist regime took over, where the market “fell” 100%; that means: it was closed.
The first of those vicious bear markets of the last years is the Greek one, which had a 95% fall from the top. Best of all is that despite the fact that the market seems cheap here, it is very likely that the bear secular market is not over.
In fact, the market is down now 40% from its recent recovery. The fact that a leftist populist party is leading the polls for the next election does not help the recovery. And whoever looks at the data: current salary compared to that of 2009, will notice that the real crisis has not yet started there.
The second case is the Iceland market, which fell a whopping 95%, with a market close included, after which it opened 77% below the previous close.
Five years after the collapse, the market still quotes 90% below its previous top.
This is for those who say that Iceland is a successful recovery because it “sent” bankers to jail (that is, of course, laughable).
Bear Market Cyprus
And the last, and probably the worst bear market in history, is the Cyprus one.
This wayward European country, with its little tax heaven, was severely punished by the EU masters, and his bear market has been going on till today, with an incredible fall of 99%.
For that market to recover, it would take almost 7 100% consecutive bull markets, or in other words: it needs to go from 1 to 100.
The only way they can do that in 10 or 15 years is through hyperinflation.
Either this market is one of the best buying opportunities of all time or the one is signaling that a communist regime is about to take over. The latter does not seem plausible at the moment, since this economy is more or less opened, and it needs an attractive fiscal regime to attract investors.
Cyprus cannot afford semi communist experiments and maintain a decent standard of living at the same time.
I do not know what really has happened to that market for such a fall, but I suspect that the capitalization of their main banks was almost the entire market before the collapse.
There is a strong retail brokerage industry in Cyprus, with some of the most known forex, CFDs and binary options brokers in the world like Etoro, FxPro, and Markets.com. Although these companies are not listed; perhaps because they do not need it. They do well without being listed for the moment. And if they do, they will probably do so in the London Stock Exchange or another major one.
I do not know why but I think that these models are the ones that some other European countries will follow sometime in the next years, including probably Spain.
The only way some European big countries can avoid a complete market collapse is by taking its own currencies and take the way of Zimbabwe, Argentina, Venezuela and countries like that. Though, it would be interesting to see the behavior of those markets in dollar terms. Things would be very different.
In the case those countries keep the (German) €, there is no other way out that another and epic stock collapse.
Historic bear markets
The only bear markets (1) similar to those described above –apart from communist cases – are those that took place in the Twentieth Century due to the major World Wars. For instance:
- In Austria, the market fell 96% in the period 1914-1925 and an 87% in 1947-1950.
- In Belgium a 80% between 1914 and 1918.
- In Finland an 85% in 1917-1921.
- In France an 87% in 1943-1950.
- In Germany a 91% in 1948.
- In Italy an 85% in 1944-1945.
- In Japan a 98% in 1943-1947.
- Spain an 84% in 1974-1982.
The difference between most of these bear markets and the ones of this current crisis is that they took place in catastrophic situations like war or post war periods.
The most remarkable fact of the recent bear markets is that they have taken place in the absence of major wars.
It is possible that something is draining the capability of genuine growth (efficient and qualitative growth). That is no other than the State and its relentless and exponential growth of the second half of the Twentieth Century.
- Source: Wade Pfau Blog